Analysis Milk powder
Milk powder price is slowly crumbling
Where cheese and butter prices are holding up or even picking up, the milk powder market cannot break pots. Remarkably enough, the futures market prices are picking up, so that the milk powder market as a whole looks directionless.
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Without noticing, milk powder prices have lost considerable ground. At the end of March, the DCA quotation peaked above €4.200 per tonne and since then 15% of the price value has evaporated. In between, there was another recovery in June, but then sentiment turned again. In that respect, the cheese and butter markets are more solid. They are still trading briefly below the record level.
Market looks fragile
The milk powder market looks somewhat fragile. The cause seems to be mainly due to a lack of demand, which is described as tame. On the supply side, the principles are quite solid. The stocks are not excessively large, or so the idea is. It is striking that production of skimmed milk powder in the Netherlands has been significantly increased, according to figures from RVO. In the first seven months, production increased by almost 15% to 66.300 per tonne. Compared to cheese and butter, the volumes are small, but the increase is striking. Europe-wide production increased by 0,5% in the first half of the year to just under 800.000 tons.
The increase in production is striking, given that milk production actually declined during that period in both the Netherlands and the European Union. The increase is all the more striking in view of the sharply increased gas prices, which have significantly increased production costs. In addition, the stable high cheese prices provide the best valorization of milk.
Stocks more than expected?
The fact is that milk powder production has grown, while sales are under pressure. Mainly sales outside Europe, where a large part of the production goes. In the first half of the year, European sales of skimmed milk powder fell by 19% to 334.000 tons. Export volumes to China, the largest buyer, even fell by 40% to 42.500 tonnes. The drop in demand is a major loss. In any case, it cannot have been due to the weak euro.
There are now rumors in the market that the tight stocks have been increased somewhat. Inventories may be larger than expected, putting pressure on the market. It is inexplicable why the skimmed milk powder quotation on the EEX has risen to €3.700 per tonne. In any case, the physical market does not seem to be following this movement. It looks directionless. One week prices may rise slightly, then drop again. In other words: volatile, with prices slowly crumbling.