Analysis dairy business
Liquid dairy is dirt cheap at the moment
The prices of liquid dairy on the spot market are heavily undervalued compared to the solid end products in the form of milk powder, butter and cheese. The recent strikes at dairy companies exacerbate the imbalance between liquid and solid dairy prices.
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The liquid dairy market is in an exciting phase. Milk supply is at the peak of the season, with volumes significantly ahead of previous years. Processors experience the supply as ample. Production capacity must be used to the maximum to process the milk. From this perspective, the strikes by factory workers in the dairy sector for a better collective labor agreement are unfortunate. Moreover, a solution to the wage dispute is not yet in sight, which means that the strikes could spread like wildfire across the Dutch production apparatus. So far, FrieslandCampina in particular has been affected.
Spot milk prices significantly discounted
The strikes are mainly a stumbling block for spot milk prices. The quotation for the Dutch market dropped by €3 last week to a paltry €26 per 100 kilos. This is almost €30 lower than this time last year. This is also the lowest level since May 2020, when the market was dominated by the corona crisis that had just broken out.
Cream cheaper than butter
According to market insiders, prices for cream and skimmed milk concentrate are less susceptible to price pressure due to the strikes, although this does not make the logistical handling of deals any easier. The quotations increased slightly last week, but this does not alter the fact that cream and skimmed milk concentrate are severely undervalued. Cream is even cheaper than butter. Historically, this is rare. This imbalance is a sign that cream providers must make a sacrifice to sell the product.
Concentrate widely available
The price difference between skimmed milk concentrate and skimmed milk powder is about €1.000 per tonne. Such a large gap over a longer period is very unusual and further proof that liquid dairy is widely available. During the peak of milk supply, the price of skimmed milk concentrate often drops, but not to this extent.
Normally, liquid prices on the spot market pick up after the peak of milk supply has passed. This expectation is still hanging over the market, although the imbalance between cream and butter will probably continue for a while.