Analysis dairy business
Milk powder market lacks the Chinese panache
The milk powder market continues to struggle in the new year. From week to week, the boundaries have to be pushed in a negative sense. Although the price drops in cheese and butter are much more intense at the moment, the milk powder market has also suffered a lot of damage. Chinese demand is sorely missed.
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The price development of skimmed milk powder over the past year and a half resembles a mountain in the Alps. The price revival started in the autumn of 2021 from €2.500 per tonne, then the market peaked above €4.200 last spring before falling back to €2.500 per tonne in mid-January. The market is actually back to square one, just like whey powder and whole milk powder.
Cocktail of factors
The market is under pressure for several factors. The United States is a dominant player on the world market, which affects European exporters. In addition, Chinese demand has been failing for a long time, something that greatly determines the mood on the milk powder market. In the first ten months, sales to China shrank by 40% to around 70.000 tonnes, compared to the same period last year, according to Eurostat figures. Due to increased exports to Algeria - which is now the largest buyer - the total decline outside the euro zone was more moderate: -14% to more than 575.000 tons. Sales within Europe are also faltering. This can be attributed to high inflation, which puts pressure on demand for luxury goods such as chocolate. In addition, milk production has increased significantly. There is therefore no longer a question of tight milk powder supplies.
Corona in China
Recently, sales prospects have deteriorated further. The flaring corona pandemic in China is clouding the short-term sales prospects. In the longer term, the opening of the Chinese economy does offer the prospect of more sales, but this will probably take months, if not longer. In addition, China is no longer the growth market it once was. China announced this week that its population has shrunk for the first time since the 1961 famine. Birth rates have been under pressure for some time, meaning a further contraction is in the offing. On the other hand, dairy consumption in China per capita is likely to increase further, but Chinese milk production is also growing.
Intervention
For the time being, there appears to be little prospect of escaping the downward price spiral. In the quota-free period from April 2015 until now, the average skimmed milk powder price was just €2.200 per tonne. The market is not very far from there anymore. Every now and then you hear the word 'intervention' in the market, but that is an exaggeration. That price is €1.698 per tonne. The market probably does not have to bow that low, although nothing can of course be ruled out.