Low supply good for price, bad for processor

The difficulty with the still disappointing milk supply is that processors discover at some point that they have sold more product than is available. To avoid fines, they have to go to the spot market to purchase additional product. This causes misunderstanding among farmers, because they see that spot milk is purchased for €0,60 or more per kilo, while they are only paid €0,48 per kilo.

Loss of members is extra hard
Loss of members or suppliers is extra hard in such a situation, because the last thing a company wants is even less milk. Companies can thus encounter business difficulties. In larger companies, the consequences of this imbalance can usually be dealt with internally, but this does not happen automatically. An example of a company that had to absorb a major loss of membership (and therefore a significantly lower milk supply) is Milcobel. Last year, hundreds of members switched to Laiterie des Ardennes and A-ware. The dairy farmer had to compensate for this by purchasing more on the open market, for example in France. However, other solutions are needed for the long term and the production apparatus must be cut back.

Thanks to a rising dairy market, divesting activities and keeping production lines reasonably occupied, Milcobel still managed to pay a satisfactory milk price and make a profit. The fact that less milk had to be used is only mentioned in a subordinate sentence. It's not fun.

Cutting production equipment
When presenting the annual figures, FrieslandCampina barely devoted a word to the fact that a large group of members (and also a considerable volume) was lost. That was not the first time, by the way. The direct consequences of this are not visible, but the company has indicated several times that production equipment must be cut. This has now started. Several powder towers are closing and an old fresh dairy factory is being closed. There are also signals that the company wants to limit contracts for toll production.

That is unwelcome news for DMK. DOC Kaas may have acquired new members and extra milk, but parent company DMK has not. This year, a large number of members (with reportedly a quarter of a billion kilos of milk) said goodbye. They have sought their fortune on the open market, often through a suppliers' association (Milch Erzeugergemeinschaft / MEG). On the one hand, this behavior is understandable. Everyone now wants the milk, and for considerably more money than the existing customer. What it brings for the long term is less certain.

Processor must enter the spot market
It is not nice for the cooperative. More lines are becoming understaffed and in order to continue delivering, the company itself may have to enter the open market. This is to make up for the supply loss. It could even be that the milk of lost members returns in this way, but through an intermediary and at a higher price. It's not the first time. A short-term advantage for an individual dairy farmer therefore means a disadvantage for the cooperative. The same problem applies to private companies that pay a lagging milk price.