Liquid sinks in good commodity market

Milk fat is an exception, with a sharp increase in the price of cream and a butter price that fluctuates slightly at a distance.

Several explanations are being put forward for these developments. Milk supply is and remains high for this time of year. As a result, reports indicate there is insufficient capacity to separate raw milk into cream and skimmed milk concentrate. This is causing the raw milk price to drop sharply again.

Cream is selling fairly well, but skim milk concentrate is more complicated. There's export to Southern Europe for fresh sales, and plenty of concentrate is also dried into skim milk powder, but there's still more concentrate supply than the powder towers, particularly in Northwest Europe, can handle.

Concentrate is therefore finding its way to Poland, but the downside is that buyers are no longer offering much for the concentrate due to high transport and drying costs. This week, the DCA price dropped by about a third to €705 per tonne of dry matter. The sharp rise in the price of milk powder in recent weeks means that there is still a good margin for the trade, often up to €1.000 per tonne. Skimmed milk powder is currently selling for around €2.500 per tonne.

Dairy producers who have their own milk supply are in a more difficult position than buyers. They can't start with a raw material that's been devalued by others. They pay dairy farmers a market-based milk price and then have to convert the milk into powder (and cream). This is an operation that currently barely covers costs (but also no longer incurs a substantial loss, as in recent months).

The price of cream is actually rising further this week, although the market remains quite volatile. The DCA price is up almost 15%, but is still below the butter price. This effectively imposes a penalty on butter production, because to achieve a comparable return, the butter price would actually need to be €1.000 per tonne higher than it is now. This is another sign of an abundance of liquid product.

The most profitable option for dairy commodity production is cheese production. Prices for foil cheese and mozzarella, in particular, are still rising. Other cheese prices are also increasing, but relatively less rapidly. Supplemented by whey yields, foil cheese and mozzarella production, in particular, generate good returns. Companies that can upgrade their whey to higher whey content are doing particularly well.