Milk price rising faster than expected

The fact that FrieslandCampina increased the guaranteed price for November at the beginning of this week can safely be called a surprise. Although prices for cheese, butter and milk powder have made significant progress since September, it usually takes about three months for milk prices to respond. Due to the disappointing revenues in the first half of this year, the market expected that dairy companies would use the last quarter to compensate for the lower results from the previous quarters. Apparently an increase is possible after all. DOC Cheese also increased the milk price. Arla is even more cautious and paused for November, but says it recognizes itself in the positive market. 

Unexpected
Many insiders did not see that positive market coming. Just two months ago, the markets were dominated by ample inventories and a lack of demand. Particularly for butter and milk powders. The cheese market was clearer in terms of supply, but here too the demand was not wild. Since September, market sentiment has turned from quite weak to very positive. Sentiment is often an elusive thing, but nevertheless there are a number of factors that explain the changing tides in the market.

First of all, that is the milk supply. In addition to a seasonal decline, many price-determining countries in Europe such as the Netherlands, Germany, Belgium, France and Ireland are experiencing lower supply volumes year-on-year. The demand side is more impulsive than expected. This is probably because inflation has subsided. A relatively weak euro and better than expected market demand from China are also fueling sentiment. Export volumes outside Europe for many manufacturers are ahead of previous years. A country like Algeria buys a lot of European milk powder, according to figures from Eurostat. Export volumes are almost double compared to last year.

Phosphate traded more expensively
The increase in milk prices is welcome news for dairy farmers. After the significant write-down on the 2022 rally, it was a struggle to cover costs. The high manure sales in particular are cost-prohibitive, but feed is also still quite expensive. Various accounting firms have warned in recent months to closely monitor the liquidity position. Now some air is carefully created that can be used, for example, for the purchase of phosphate. That market has also realized that milk prices are picking up again, as phosphate has been trading at a higher price this week for a long time. The increase in the milk price also seems likely to continue in December, as the raw material value of milk has already increased by around €4. Provided, of course, the dairy market doesn't change its mind.