Milk price déjà vu looms: 2008, 2014 and 2023

Price increases and decreases are commonplace. But the current scenario looming over the market is a different story. Based on the raw material value of milk, payout prices will drop to €40 per 100 kilos, or perhaps even lower. Currently, whole milk powder provides the best milk valorization, but even then, the raw material value is only €43. In many valorization schemes, the value of milk is below €40. In recent years, it was thought that the milk price would never fall below this new lower limit, but reality has proven more difficult.

Bottom not yet reached
The dairy market has been struggling with a form crisis for weeks and is still in the corner where the blows are coming in mid-October. Due to the ample milk supply, the bottom in the market is constantly being reached. further down This is partly because the downturn occurs at a unique time. The market often declines in the first half of the year and then recovers in the second. This is a logical consequence of seasonal milk production, which peaks in May and is at its lowest in November. This year, we are seeing the market decline in the run-up to the seasonal low.

There are, however, reasons to explain this atypical trend. Due to high milk prices and low feed costs, dairy farmers worldwide have significantly increased production, resulting in a significant increase in supply in many countries. Furthermore, the impact of bluetongue has disrupted calving patterns, resulting in a later peak in production in Europe this year. It will take at least another six months before milk supply starts to decline seasonally again. Moreover, production volumes have dropped significantly in almost all of Europe. throughout Europe and also in the United States and New Zealand are much higher than previously calculated.

Butter and cheese sales are currently still relatively good, according to producers, packers, and trading houses. However, the question is what sales will be like when the weak winter months arrive in the new year. It also needs to be taken into account that Christmas and New Year's Day don't fall on a weekend this year, which will likely pose a major logistical challenge. Something the weak market can't really handle. Meanwhile, the euro remains strong, complicating overseas exports.

In other words: there will be (far) too much milk in the coming months. This is underscored by spot prices, which have already fallen to a mere €30. An American analyst summed it up succinctly last week: "We need more beef and less milk fat." By doing so, he implicitly suggests that dairy farmers would be wise to send cows to slaughter to relieve the milk market. This simultaneously solves another problem, as the already tight beef market is desperately seeking additional supply.

Although payout prices are trending downward, current levels of around €50 are still attractive enough for dairy farmers to keep their foot on the gas. This means further corrections are necessary. And they will come, given the sharp drop in butter and cheese prices. Price drops of €10 to perhaps €20 are a realistic scenario for the coming months.

2008, 2014 and 2023
Such large declines occur every few years. In 2008 and early 2009, the milk price fell from over €40 to below €25. This was due to the global credit crisis, which eroded demand for dairy products. In the run-up to the end of the milk quota in 2015, the market plummeted again. A decline also occurred at the start of the coronavirus crisis. Shortly afterward, the milk price rose dramatically when the commodity market was derailed by the war in Ukraine. Milk production in Europe subsequently rose sharply. As a result, the market became oversupplied, and the milk price fell from over €60 at the end of 2022 to below €40 in the autumn of 2023. From then on, the market recovered moderately to price levels above €55 that we had seen until recently.

The first processors have now broken through the €50 barrier. With current knowledge, the milk price will drop to around €40 in the coming months, and perhaps even lower. For Dutch dairy farmers, this is an extremely bleak scenario, given the high manure disposal costs. However, the laws of the market are sometimes ironclad: Higher prices simply lead to lower prices, as is the case in many free markets. And that's what the European dairy market has been for over ten years now, with all the advantages and disadvantages that entails.