Analysis Dairy
Substantially more milk powdered, despite high gas prices
When gas prices exploded a few months ago, many in the dairy sector thought that this would put a brake on the production of milk powder. After all, powdering milk is an energy-intensive affair. However, the opposite is true, milk powder production is peaking. Especially in the Netherlands.
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In October, the Netherlands produced 10.377 tons of skimmed milk powder. This is an increase of no less than 87% compared to the same month last year. This can be partly attributed to the increased milk production in our country. The increase is not an incident. Over the period January to October, Dutch milk powder production increased by 27% to 94.500 tons. The increased production of skimmed milk powder is at the expense of whole milk powder and condensed milk. Growth is also more than 20% in Belgium.
There has also been an impressive increase in production across Europe since September. In October, European production amounted to 104.000 tonnes, compared to 91.000 tonnes in 2021, according to provisional figures from Eurostat that include the major producing countries.
Market under pressure
The sharp increase in milk powder production is striking for several reasons and is therefore difficult to explain. Gas prices have skyrocketed since the summer. In theory, this should inhibit the incentive to powder milk. In addition, skimmed milk powder prices have been under pressure since the summer. Since June, the DCA quotation has already fallen by 30% to approximately €2.800 per tonne; Historically speaking, it is still a good price. The pressure on the cheese market only started to increase much later, from the fourth quarter onwards. However, processors continue to powder a lot of skim milk, although cheese production has also increased somewhat due to the increased milk supply.
Due to increased production, milk powder stocks have increased considerably, partly due to tepid demand in recent months. Skimmed milk powder has difficulty finding a bottom. The market has been struggling for weeks. Chinese demand has fallen sharply this year. And the fact that a corona wave is now hitting the country will not do the sales potential any good. In the longer term, the opening of the Chinese economy may be beneficial, but that is still in the future.
World market prices
On the world market, European skimmed milk powder prices (expressed in dollars) are no longer the most competitive, now that the Global Dairy Trade fell again during the last auction of this year. There is little or no price-increasing news on the milk powder market. The increased production volumes in Europe therefore weigh extra heavily.