Tight supply of liquid dairy raises bargain prices

The valorization of the milk appears to be lagging behind in the figure above, but that is because the so-called Rohstoffwert, as determined by the Kieler IfE, is one month behind and is also based on German prices. The current reality is that the value of Dutch milk, after deduction of costs, exceeds 50 cents, although this does depend somewhat on which products are made.

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Simply separating milk into cream and skimmed milk concentrate yields the most, but this is only possible on a fairly limited scale. However, in the current circumstances it is a good option, because the fresh market demands a lot of cream and - especially in Southern Europe - also concentrate.

Price spurt cream
The price for the latter product has been more or less stable for a long time, the cream price has risen considerably in recent months. There was another dip last month, but picked up again last week, only to suddenly rise sharply this week. With a DCA quotation of €8.495 per tonne, no absolute record has yet been set. There is still just under €500 to go, but a record level has certainly been reached for this year. And that at a time of year when it is normally quiet.

At a price of €2.175, concentrate is many times cheaper than cream, but it is still too expensive to make milk powder, which yields barely €150 more per tonne. That is not enough to cover the processing costs. However, the fresh market absorbs the concentrate well, especially because the volumes of product are not enormous.

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There is a similar problem with cream. Cream is currently so expensive that it is not worth turning it into butter. It is better sold for the fresh market. Then there is more margin left. In some ways this is fortunate for the butter market (seen from the perspective of producer and dairy farmer), because the shortages on the butter market are maintained. There also remains a small risk that prices for milk fat will actually collapse.

To change this situation, a much larger supply of cream is first required. That does not seem to be an immediate issue, even though various market parties believe that the current higher cream prices cannot be maintained. 

Perspective
It is not very common for liquid dairy prices to rise so sharply in the middle of summer. It suggests that there are also good prices in store for later this season, because the milk supply does not seem to be increasing much in the coming months. This is a good prospect for dairy farming, but it is not completely without threat. Outside Europe, milk fat prices are a lot lower. On the other hand, milk powder prices appear to be cautiously recovering from the trough, while cheese prices are also trending slightly higher again.