Concentrate bubble does not derail the dairy market

The prices for solid dairy products in particular all remain within a certain bandwidth. According to the DCA quotations, the average foil cheese price remains firmly below €4.000 per tonne, mozzarella does not break the €3.600 mark. Cheddar also remains under €4.000. 

With milk powders, downward pressure still dominates. The price is decreasing step by step, especially for skimmed milk powder. There also remains a lot of pressure on prices for whey powder.

Yet buyers are not lining up to stock up, even if they have only partially covered their needs for the coming months. Apparently they are betting on even lower prices, or at least they expect that the market will not change much in the coming months.

Looking at exports, they may be right, because exports outside Europe are difficult. The EU is expensive, but competitor New Zealand has little supply left, because milk production is reaching a seasonal low, and the US also does not have a very large supply. The situation could therefore quickly turn in favor of the EU. Because in addition to price, availability also counts.

Peak gradually passed
It will then also become more difficult for buyers in the EU to secure the product. And there will no longer be much more milk supply in the EU. Dairy farming is now at the peak of supply. At least, in the Netherlands and Germany. In France the peak is already over. Gambling on a period with even cheaper dairy supplies therefore seems an uncertain strategy.

The butter market seems to be a clear example of what waiting a long time can yield. Here there are quite limited stocks and buyers actually have to pay a little more to get product.

For those hoping for cheaper Irish or Polish product, it's also disappointing. There is hardly any extra Irish product at lower prices due to the late and wet spring and Polish product is now almost as expensive as Northwestern European product.

However, the strong upward movement in the liquid dairy market should not be seen too much as a sign of things to come. The enormous price increase for skimmed milk concentrate in particular is an atypical development.

This price spike is caused by estimation errors, market parties believe. When skimmed milk concentrate was widely available at very low prices a few weeks ago, various trading parties purchased drying capacity for a certain period, assuming that cheap concentrate would still be available for a long time. However, things turned out a little differently. Cheap concentrate is available for less time than expected and now drying capacity tenants have to choose between shutting down the milk powder towers earlier or paying higher prices for concentrate. The choice seems to have been made for the latter.

Turning point
The turning point for powdering to be profitable seems to be around €1.850 per tonne of concentrate. The current quotation is still slightly below that, but the room for further price increases in the liquid segment appears limited. The situation is also complicated by a capacity shortage in the processing of raw milk into cream and concentrate. This also means that there is less concentrate available than many buyers would like.   

Prices for other liquid dairy products will increase much less sharply than those for concentrate. The cream quotation did increase by €180 per tonne, but that is only a plus of 2,75% and not 22%, as with concentrate.

Raw milk is also becoming slightly more expensive, both in the Netherlands and Germany, but still remains well below the payment price that the farmer receives from his processor.