Analysis Milk
Milk price almost in balance with market again
For more than half a year, the balance between (spot) milk prices and the dairy market was hard to find. Meanwhile, the market is getting back into balance. This required a substantial write-down for the payment prices, which puts dairy farmers on edge financially in the expensive months of the year.
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Although milk prices are forming a bottom, this has not yet been reached in June. With the exception of FrieslandCampina, processors are still making reductions to a greater or lesser extent. Looking back on the past few months, this was a big laugh for dairy farmers. In December the basic payout prizes still at a dream level of €60 per 100 kilos. Six months later, some processors are already seeing a three-year increase in the milk price. That's how fast it can go.
Rabobank warns
In that sense, it is not surprising that Rabobank dairy farmers warns to keep a close eye on the liquidity position during the expensive months of the year. Historically, the current payment prices are not that bad, but with today's costs, structurally higher benefits are necessary. Accounting firm Alfa previously sounded the alarm. An increase in the milk price is not even remotely in the picture. However, the unexpectedly more positive dairy market in recent weeks means that the bottom will be slightly higher than previously thought. This is little consolation for dairy farmers after the free fall in recent months.
Based on the valuation of skimmed milk powder and butter, the Kieler Rohstoffwert of the Institute for Ernährungswirtschaft (IFE) recorded €36,30 per 100 kilos in April. This can be seen as the bottom of milk valorization. The calculation for May is not yet known, but is likely to be slightly higher.
Balance almost achieved
Due to the ample milk supply in Northwest Europe, spot milk prices were far below the raw material value in the first months of this year. Due to a significant price increase in May, the difference is no longer that big. The payout prices were actually well above the raw material value, but due to the recent declines this difference is also smaller. These trends are likely to continue in the coming weeks. The market and milk prices will probably be completely in balance again around the end of the first six months. At least as long as no unexpected market movements occur.