'Milk price stable to slightly rising due to less milk'

Most of the past year was characterized by corona. Rabobank is now looking to the future with more clarity, says Rabobank in the latest Dairy Update. Based on the current, higher prices for basic dairy products, the bank expects a stable to slight increase in milk prices in the next three months. "The past shows that it takes about 2 months before rising prices of dairy products lead to a higher milk price for the dairy farmer."

Since January, prices for dairy products have shown significant increases. For example, from the beginning of December to the second half of February, the price of skimmed milk powder rose by +7,7% to €2.348 per tonne and butter increased by 5,3% to €3.584 per tonne. Whole milk powder has also become 6% more expensive (to €2.913 per tonne) and there is a visible increase of no less than 14% in mozzarella (to €2.850 per tonne). These increases are partly due to greater demand in the European Union and from Asia. "It is also a factor that dairy stocks and milk supply are both lower than expected."

Expected less milk
Rabobank expects milk production in the 7 largest milk-producing countries to grow by 1,1% this year. That is less than last year's 1,6%. "It means that the supply of milk will be smaller this year," the bank writes. "We do not expect an increase in milk production for the first quarter, but perhaps even a decrease, fueled by the unfavorable cold and wet weather conditions." The bank then sees slight growth of 0,9% and 0,6% in the second and third quarters, compared to last year.

In the European Union, production increased most strongly last year in Italy (+4,1%), Ireland (+3,8%) and Poland (+2,0%). In the Netherlands, milk supply increased by 1%, compared to a year earlier. "It is expected that the winter weather will also cause a decline in production in the Netherlands in the first months of the new year. We anticipate stable to small growth in production for the entire year, depending on the weather conditions in the growing season. "

Opportunities for the dairy farmer
The corona crisis has also changed consumer behavior significantly. For example, there has been more demand for locally produced food and more is being sold via the short chain. According to Rabobank, this creates opportunities for dairy farmers. "We see that processors and retailers are responding to this changing behavior by developing new milk flows. Examples are: 'On the way to PlanetProof' and 'Better for Cow, Nature and Farmer'." The estimates show that approximately 2.000 dairy farmers currently produce under such a quality mark.

Another opportunity is the need for imports from China. "We expect imports of milk equivalents into China to grow by 2% in the first half of this year, compared to the same period in 2020. This is due to rising dairy prices in China and inventory build-up. For the second half of 2021, we expect a decrease in import requirements of 11% (over the entire year). This is due to a decrease in demand. In addition, stocks have further accumulated towards the end of the year."

A challenge for the long term remains the liquidity of the company. "Last year, the milk price was €2 per 100 kilos lower than in 2019. Most livestock farmers have absorbed this dip well, but it is causing pressure for some companies. This is often due to a combination of cost increases (as a result of the drought). ) and rising feed costs." The bank states that the current milk price is sufficient on average, although it is too low to continue to meet all obligations in the longer term.