Milk price can be skimmed over time

The transition from late summer to autumn has not done any good to sentiment on the dairy market. During the summer months, the prices of many manufacturers were still able to maintain high levels, but that is no longer possible. The long-awaited price corrections are now happening.

Broad price pressure
While the seasonal increase in European milk supplies will soon increase again, the dairy market is increasingly affected by recession fears. The sky-high inflation in the eurozone is putting considerable pressure on purchasing power. This pressure is now becoming too great for the market: the price pressure is expressed across the entire width of the market, from skimmed milk powder, butter to cheese. Record high spot milk prices have also been knocked off their pedestal. Buyers have recently become unwilling to pay more than €60 per 100 kilos. Simply because this no longer matches the raw material value of milk.

Based on the valorization of butter and skimmed milk powder, milk is now worth less than €60. The raw material value has been considerably slimmed down without noticing, and in the summer it even reached a level of €70. The raw material value of milk is also under pressure based on its valorization into cheese, now that the prices of Gouda and Edam threaten to fall through the €5.000 per tonne limit.

Maturing the minds
The basic payment prices that dairy farmers receive have recently leveled off after a historic rise. Almost all processors have a six in the denominator. Now that the dairy market is under pressure, stability is suddenly no longer so certain. Milk prices often respond to dairy market prices with a delay of approximately two to three months. This means that milk prices for November may already be heading for a reduction. Some processors are already preparing spirits for this, so that a decline does not come as a bolt from the blue.  

The first milk prices for November will be announced in the second half of next week. Especially now that the Global Dairy Trade (GDT) has again taken a serious hit, it will be exciting to see what price developments emerge. A drop in the milk price takes some getting used to. The last time that payment prices moved significantly downward was in the summer of 2020. Then came price pressure due to the corona pandemic, which had recently thrown the dairy market out of balance. The specter of inflation, which now threatens to destroy the milk price, was still lying low at the time. There is no need to fear major price corrections yet, but the relatively high milk price can probably be skimmed off.