Price erosion of fixed dairy products eats into producer margins

The developments are particularly affecting companies that are highly dependent on commodity products. Processors with a large package of products with a lot of added value are less affected.

The weakening market for cheese and milk powder is not an unusual phenomenon for this time of year. In the middle of summer, demand for many products is weaker due to a combination of holidays and nice weather. Less cheese is bought and buyers from retail companies often have time off. Because there was also a bit more stockpiling, cheese production was reduced slightly and more other products were made. It is striking that the price of mozzarella dropped quite sharply this week.

It seems that this, combined with an already difficult milk powder market, has caused many owners of older batches of milk powder to now market them, often at prices around or below €2.200 per tonne. As a result, the DCA quotation for skimmed milk powder has again turned out lower than first thought.
Fresh produce is however quoted higher than the above prices. The stronger euro against the dollar is also not helping companies to get rid of their stocks quickly and easily.

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In addition to the cheese and milk powder prices, there is also extra pressure on the butter price. The market is pointing to cheaper product that is supposedly available from Ireland and Poland. This product is supposedly for sale for prices between €7.150 and €7.200 per tonne, while the normal North-Western European product is considerably higher in price. Stories about even cheaper Polish product can be traced back to one manufacturer with a slightly less good reputation. The question is what is actually happening with the butter quotation. This week it is slightly lower and it may drop further due to a weaker summer period, but there still seem to be few stocks. In the meantime, the cream quotation remains fairly stable, as in many previous cases when the butter price did not really drop either.

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While the cream quotation remained fairly stable, the quotation of skimmed milk concentrate rose sharply again this week, despite the aforementioned weakening of the milk powder market. The concentrate quotation is nevertheless being kept afloat by good demand from the fresh market and export to Southern Europe. Incidentally, the availability of concentrate has also become smaller.

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The price of another concentrate, whey concentrate, rose even more, namely by almost 23% instead of 4,8% for skimmed milk concentrate. The cause is the decreasing cheese production and a continuing good demand for whey concentrate for the production of higher WPCs.

The price of skimmed milk and raw farm milk (spot milk) is also steadily increasing, which completes the circle and once again highlights the declining margins.