Processing plug costs money and helps milk price

The most commonly heard explanation is that processing capacity is insufficient, but that is only part of the answer. Processing capacity is particularly lacking in Western or Northwestern Europe. For the first time in years, there is once again strong demand for milk powders from Europe. This is linked to exchange rates, trade policy, logistics, and market access.

Europe competitive again
Europe has the wind in its sails, partly because the EU is the most competitive on the global market so far this year, particularly for skimmed milk powder. Exports can take place at full capacity.

Cheese is a slightly different story, but production and sales are running at full speed here as well. Gouda (wrapped) cheese and mozzarella are performing better than cheddar. Production is at full capacity. Meanwhile, the whey (powder) market is also strongly on the rise, as shown by DCA Market Intelligence benchmarks. 

Powder less profitable, towers disappeared
The problem is: where can all that liquid dairy be dried? In recent years, the production of milk powders has been less profitable, and many drying towers have been taken out of service or demolished. Drying towers also struggled due to high energy prices following the Russian invasion of Ukraine and the subsequent energy embargo. The Iran war is now causing a repeat, but that is beside the point.

In any case, drying capacity has declined sharply in the Netherlands and surrounding countries. In recent years, FrieslandCampina closed or disposed of powder towers at six locations (including Milcobel). It is not the only processor to do this. This is starting to have consequences, especially now that milk supply has been unexpectedly high since the second half of 2025 and the sales position has changed simultaneously.

Drying or fermenting
There has been a large surplus of milk in the EU for months, and not all of it can be properly utilized. Much raw milk and liquid dairy is being written down and sold at low prices. Sometimes it even goes to digesters for biogas production.

In some cases, such as with high-quality whey proteins, parties can compensate for this, but even then, value is lost. However, the limited processing capacity also has a downside.

Underrated
Due to limited drying capacity, various liquid products are fetching lower prices than in other years. This mainly concerns raw milk and skimmed milk concentrate. Normally, the spot price of raw milk is around the average payout price, but now it is well below it. Something similar is at play with skimmed milk concentrate. Last year, the price was €700 to €800 per ton (dry matter) higher than it is now, while skimmed milk powder actually fetched a comparable amount less at that time.

Whey also presents a processing problem, but it manifests differently. A portion of cheese whey is purchased at relatively high prices for processing into high-quality whey powders (WPC80, WPI). However, the drying of whey concentrate into standard whey powder is becoming less common. Skimmed milk concentrate is given priority on drying towers because the margin here can reach €1.500 to €2.000 per ton. Standard whey powder cannot match that. Additionally, upgrading whey concentrate to WPC80 is more attractive. However, not all dairy companies are capable of doing this.

A third stream consists of whey permeate and lactose. A growing proportion of the first product remains as a residual stream during the production of high-quality WPCs. The price of dried lactose is currently relatively high (above €1.400 per ton), but in the competition for drying capacity, whey permeate is also losing out to skimmed milk concentrate.

Investment plan?
The downside of this suboptimal processing is that powder production is inhibited. As a result, powder is scarce and prices are high. This appears to be an attractive investment scenario, but the duration of the current situation is uncertain. No one knows how long the combination of high milk supply, limited processing capacity, and a strong export position will persist.

Anyone investing in a new drying tower now runs the risk that it will not be operational until the market has already turned around. For high-quality whey powders, the situation may be different. Various companies expect demand to persist longer in this area and have already initiated investments.