The price of both butter and skimmed milk powder may look up again this week, although both markets continue to feel fragile. In any case, some optimism has crept into the dairy market. After all, the raw material value of milk will not drop any further. Will the turnaround come in time for a floor below payout prices?
In June, milk prices seemed to be heading towards stabilization, but in July pressure on the dairy market surfaced again. Based on the valorization of foil cheese, the raw material value of milk is now considerably below €40 per 100 kilos. If we calculate with the least valuable combination of skimmed milk powder and butter, barely €35 in milk money can be paid out. A bright spot for processors is that the market appears to have found a bottom since this week, which means that the pressure is in any case not building up any further.
Too high payout prizes
Milk prices in July are often still above €40 and are therefore too high in light of the market. The meager profit from FrieslandCampina is proof that the milk price was too high in the first half of this year and is probably still too high in mid-July. Other dairy companies do not release half-year figures, but they will not be too rosy either. This will be off the record also confirmed. The market is also much less favorable for dairy traders than last year.
Investment in raw material position
Between the lines, various dairy companies hint that the milk price should actually be further reduced in August. But this is easier said than done. Lowering the milk price is difficult to sell to members and suppliers, who today will ignore the slightest thing. At a time when the supply of milk is under pressure, this is a risk. At the same time it is also an opportunity. After all, a relatively high milk price attracts suppliers. It is therefore suggested that processors deliberately pay more this year than the margin allows. This is then seen as an investment in the raw material position of the future. This benefits the position of dairy farmers in the chain, but that is beside the point.
Psychological effect
So far, no one among the Dutch processors has dared to take the lead and be the first to get below the €40 limit. After all, this has a major psychological effect. Traditionally, a milk price above €40 is not bad, but below that the situation quickly becomes dire. Especially with the current cost prices on dairy farms. Although DOC Kaas is already trading below that level, it is highly dependent on the decisions taken by parent company DMK in Germany. The market is taken into account there. Just like many Belgian processors do and had often dropped below €40 in May.
New round
Next Monday, FrieslandCampina and DOC Kaas will announce the payment price for August. This is eagerly awaited in the market. Arla will also publish soon. This is followed by the rest of the dairy platoon. Lowering the milk price below the €40 limit appears to be turning into a blink-and-miss competition. And if not, suffering financially or investing in the raw material position will be viewed from a more positive frame. The dairy market appears to have found a bottom, but is making very little progress.