Milk price opens turbo, dairy market switches back

Milk prices will press the accelerator even harder in May. The payout prizes (excluding bonuses and premiums) at Arla and FrieslandCampina the - in the past deemed unfeasible - limit of €50 per 100 kilos has been passed. Other processors are expected to follow soon. There is also room for it, now that the raw material value of milk is well above €60 per kilo. Both in the production of cheese and on the basis of the combination of butter and skimmed milk powder.

National news
The milk price rally is now also national news. Various media, including the NOS, have reported it in recent days. At the same time, this also makes you think. When the national media write that the milk price is high, this is often the turning point in the market. At least that's how it is sometimes said. Often national media wake up at the peak of the market.

This seems to be the case this time as well. It is still too early to speak of a turning point in the dairy market, but quotations have lost some ground in recent weeks. Skimmed milk powder, in particular, seems to have skyrocketed, causing European exporters to lose out; despite the weak euro. In addition, China, by far the largest customer, imports significantly lower volumes this year. In March, the country imported about 25% less skimmed milk powder than last year. Whey powder imports halved. The butter market has also fallen back to just above €7.000 per tonne in recent weeks, while cheese prices are no longer rising.

In other words: the peak in the dairy market seems to be behind us (for now).

Two reasons
This view is confirmed for two reasons. First of all, the milk supply in Northwestern Europe is moving towards the seasonal peak. Although the supply volumes at factories lag considerably behind other years, the effect of the grazing season will become noticeable. This is already visible in the liquid spot market, where scarcity has receded into the background.

In addition, the demand for dairy generally decreases somewhat in the summer months. Especially during the holiday season, when consumers travel to other countries. After two holidays in our own country, there is now an extra need to sniff culture, or to have the guarantee of sunny beach weather. The extreme crowds at Schiphol during the May holidays seem to be a harbinger of this.

More stable market ahead
The combination of a higher seasonal milk supply and a drop in demand gives reason to think that the panting market of recent months is becoming more stable. All the more so because retailers are expressing strong resistance to the higher purchase prices that often still have to be passed on to consumers. Because dairy stocks are described as persistently tight, it is unlikely that prices will face a major correction in the near future. This allows milk prices to maintain high levels.

It will be exciting after the summer. Then milk production drops, while demand often picks up. At the same time, there are still many question marks. How will dairy consumption respond to higher prices? Economists believe that the impact of inflation will become more noticeable after the summer. And what will China do? Will the import lag behind, or is this just temporary? The more stable summer period may just be the calm before the storm. The third quarter is usually not boring, historically it can freeze and thaw.