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Analysis dairy market

Weak demand threatens foundation under milk price

14 July 2023 - Klaas van der Horst

In summer weeks, the bottom sinks relatively quickly below the current milk prices. Although relatively little business is being done, prices are falling. Especially with milk powder, cheese and butter. This results in a considerably lower entry level for buyers when they return from vacation and normal market conditions recover. That can generate new questions. However, these holiday weeks are not very advantageous for selling parties. Much of what is done in trade now costs money.

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This is also clearly reflected in the difference in price levels for prompt delivery and for later this year, say the fourth quarter. However, there remains a need for trade for short-term delivery, because producers have to get rid of certain batches of product, or because buyers are still short of product. The latter occurs relatively less often, because most companies are already fairly well supplied, and also because consumers keep a tighter hand on their budget. German retail figures show that consumers are gradually spending less money per unit of (dairy) product.

In the case of solid dairy products, it is butter that has seen the biggest price drops this week. Dutch and German products still remain reasonably priced, but there is a lot of competition, especially from Irish butter. Here and there it is even offered for less than €4.100 per 1.000 kilos. That is more than €200 per ton cheaper than the DCA quotation for a Dutch/German product.

Butter also reduced the price of cream, as did that of skimmed milk concentrate. The last product fell the most in price in percentage terms. This is mainly because French dairies 'discharge' concentrate. Not because of a high milk supply, but because of lagging demand. They have little interest in making dairy products that are not absorbed by the market. This French concentrate can be purchased for prices between €1.600 and €1.800 per tonne, while the DCA quotation is a fraction below €2.000 per tonne.

The quotations for raw milk are also falling, both in the Netherlands and Germany. There is not much supply, but there is also little need for milk. Normally there would still be some demand from Southern Europe, but that is not the case now. In many cases it is too hot, it was reported.

As mentioned above, the concentrate price is under pressure, but it remains too high to make profitable powder. DCA's milk powder quotation is less than €200 per tonne higher. That is too small a difference for a profitable production. At €2.175 per tonne, the price of skimmed milk powder has also reached the lowest level since 2020. Whey powder also continues to drop in price. Only whole milk powder remains competitive and even appears to be rising in price.

The cheese price is also declining rapidly. Sometimes to the surprise of producers too. Just last week, the northern German Ammerland was forced to hastily withdraw an announced price increase. The company had not realized how quickly and how far the market had moved in a different direction. The current DCA quotation is about €420 per tonne below the price that Ammerland put on the market just two weeks ago.

Thanks to good demand from the market, Mozzarella has better price stability, Cheddar and Emmentaler also have to take a step back.   

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