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Analysis dairy

Milk powder price points the way for dairy market

9 December 2022 - Klaas van der Horst

Due to a combination of longer building pressure and a Christmas slump that comes earlier than usual, the dairy market fell sharply again this week. The only product type that somewhat escapes the price drops is powder; a provisional bottom has been reached there.

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Remarkably, it was not only the milk powders, but also the whey powders. Prices for whey powders have been quite stable for weeks, although this is more visible for feed powders than for food-grade powders. The explanations for the relative stability in the market for these commodities vary. Some parties point to declining cheese production and therefore a lower whey supply. But that does not seem to be the entire explanation, because the whey powder price has been quite stable for some time. The relatively high drying costs for bulk whey powder will also play a role.
Whey powder specialties cannot escape price pressure. A product like WPC-80 has suffered significant price drops in recent months.

There is another explanation for the relative price stability (relative to other commodities) for skimmed milk powder. Skimmed milk powder food has been very competitive on the world market in recent weeks and can therefore be easily exported again. This is the result of a series of previous price drops, but with a price between €2.800 and €2.900 per tonne, a provisional floor appears to have been set. Of course, this all depends on things such as exchange rates and supply elsewhere, but it will provide some peace of mind for the near future. The price does not have to drop much further here.

However, this price is well below the price level at which the milk money is paid to the farmers. The German IfE published this week a raw material value calculation for November of just €52 per 100 kilos. At the current raw material value, an even lower milk price will result. 

Although it is not good news for milk prices, there is still the relative comfort that a bottom has come into view for the dairy market. At the current, competitive powder price, the dairy market can easily absorb the currently large supply of skimmed milk concentrates. The price of skimmed milk concentrate fell below €2.000 per tonne this week. So now is the time to switch on the drying towers again, notes a trader. Processors who still have a good energy contract can take advantage. There is enough margin to pulverize.

It is a solution that works for as long as it lasts. Structurally it will be more difficult, unless drying towers can also be heated electrically. The fact is that the number of drying towers is decreasing. FrieslandCampina, for example, has already closed several towers this year, partly because of its CO2 footprint. This factor will also play a role elsewhere.

The fact that the price of skimmed milk concentrate has now fallen so sharply (by about 20% in one week) is also due to the upcoming Christmas holidays. Then the demand for dairy is extra low and there is less staff available. However, it has been a long time since the concentrate price has been as low as it is now. The price of cream also fell sharply, but less sharply by about 14%.

In the first category, prices fell below €4.000 per tonne for the first time in more than a year, and in mozzarella prices fell so far that a large Belgian manufacturer switched part of its production to Cheddar. This type of cheese no longer records prices as it did a few months ago, but is still much better price-keeping.  

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