Milk price for the long term remains fixed at around €40

China is a major driver in the dairy market. A lot of demand for dairy products has recently come from China, which has partly led to rising quotations and thus higher milk prices. It has been expected for some time that the Chinese appetite to buy will gradually decrease, but for the time being this is not the case.

Despite the corona crisis, demand in the rest of the world is not declining, so that on balance dairy products are in good demand. With a bonus expectation on top of that; 'What if worldwide lockdowns are abolished and people can go back to the restaurant and plan days out?'

Slightly more supply of milk
The increase in supply, on the other hand, seems limited. The years of growth in milk supply in Europe - especially after the end of the milk quota - seems to have come to an end. In the United States, however, the milk supply is still increasing. On balance, there is slightly more milk supply worldwide.

After the dip in the quotations at the start of the corona crisis in the spring of 2020, the quotations of dairy products such as butter, cheese, milk powder and raw milk are therefore improving. Some price increases are impressive. Butter peaked at €4.220 a few weeks ago, while it stood at €2.226 shortly after the outbreak of corona. That's a plus of 65%.

The disruption of the dairy market due to the corona crisis was therefore short-lived in view of the price trend. The 65% plus appears to stem from strong underlying drivers. This is also apparent from the comparison of the current price with that of the beginning of last year. In week 1 of 2020, well before corona broke out in the Netherlands, fresh Western European butter was worth €3.553 per ton. Compared to this quotation, butter still peaked at a solid 18% earlier this month.

Skimmed milk powder (SMP) is now about 30% higher than shortly after the corona outbreak. And roughly equal to the level of Week 1 of 2020 when SMP was also historically high. Prices for butter and skimmed milk powder have therefore been quite volatile over the past year.

It is also clear that current price levels are historically high. And the end of those higher prices is not yet in sight. For example, if we look at the futures markets for butter and skimmed milk powder, the prices for delivery next month are about the same as for delivery in a year. And what applies to butter and SMP also applies to their raw material: milk.

Set milk price
From a calculation made by market and price risk bureau DCA Markets based on the rates of butter (fat) and skimmed milk powder (protein), it appears that dairy farmers can still fix the milk price via the futures market for the period January 2022 to June 2022 for around €40 per 100 kilos. Fluctuations in the day and per day make it difficult to state the exact amount of the fixed calculated milk price.