GDT continues to rise, why not milk prices?

The Global Dairy Trade (GDT) has mid-February recorded a plus for the seventh time in a row. On February 16, the average price was $3.746 per tonne, an increase of 3% compared to the auction day on February 2. The biggest driver behind this upward movement is whole milk powder. The product rose 4,3% to $3.615 per tonne, reaching its highest point in the past five years.

ZuivelNL also recorded positives on Wednesday 24 February. For example, the quotation of the biggest driver on the Global Dairy Trade: whole milk powder, increased by €5 to €296 per tonne. This represents yet another positive in a row. Butter recorded the same increase in the Netherlands, a plus of €5 to €365 per tonne, which means it is performing better than last year. The quotation during this period was €352 per tonne. Here too, this is the umpteenth increase in a row.  

Yet it seems that many dairy farmers cannot (yet) imitate this increasing trend. For most processors, the milk price has been stable to slightly decreasing for weeks, with an average milk price of around €33,50 per 100 kilos (at 4,42% fat, 3,57% protein and an annual supply of 1 million kilos). . Arthur Fernall, the chairman of Arla's board of directors, gave last year already indicates that the Global Dairy Trade does not always match the market image in Europe. Is that right? Or is there another reason that Dutch milk prices do not directly correlate with the GDT?

Buyers from Asia prefer New Zealand product
Mark Voorbergen, managing partner at Dairyntel, states that Arla's thinking is partly correct. "The parties that buy the large volumes on the Global Dairy Trade mainly come from Asia, and especially from China," he explains. It is important to remember that the majority of the product offered at the GDT is of New Zealand origin. "Asians prefer products of New Zealand origin, which are considered premium, and are therefore willing to pay more for them. It means that European prices do not fully match those on the GDT."

Voorbergen continues: "But if the gap with commodity prices becomes too large, they will automatically start scratching their heads." Although this does not always yield results. "Things often go wrong, especially in recipes. A different fat content is achieved or a product is medium heat instead of low heat." Voorbergen states that such a switch - to products with a different origin - takes time and by the time it has been implemented in the factories, the price premium has already disappeared." In other words: it is a lot of work for little result. Asians rather pay a little more.

Small volume of milk
Another reason for the imbalance between Dutch milk prices and the Global Dairy Trade is the fact that the quotations we follow here only concern a small volume of the total. "The Global Dairy Trade is increasing, then the European spot prices follow and only then do the longer retail contracts (which include large volumes of cheese, for example). This last group has a lot of weight in the Netherlands when it comes to the milk price."

In short: there are two main causes that ensure that Dutch milk prices cannot directly follow the rising trend of the GDT. Asia prefers New Zealand product and is willing to pay more for it. Secondly, it concerns only a small part of the volume. "Ultimately, Dutch milk prices may rise slightly in the slipstream of the Global Dairy Trade, but you should certainly not be surprised by a delay of a few months."