Déjà vu milk price threatens: 2008, 2014, and 2023

The milk prices are about to take a significant plunge, which has already started this autumn. This is tough for dairy farmers after two years of high payout prices. In the past, the milk price has often dropped sharply, as in 2008, 2014, and 2023. What can we learn from previous crashes and what is the scenario for the coming months? Price increases and decreases are an everyday phenomenon. But the scenario that is currently hanging over the market is quite different. Based on the raw material value of milk, the payout prices are expected to drop to €40 per 100 kilos, or perhaps even lower. At the moment, whole milk powder offers the best valuation of milk, but even then, the raw material value is only €43. In many valuation schemes, the value of milk is below €40. In recent years, it was believed that the milk price would never drop below this new lower limit, but practice has proven more stubborn. Bottom not yet reached The dairy market has been struggling with a shape crisis for weeks and is still in the corner where the blows fall as of mid-October. Due to the ample milk supply, the bottom of the market is continually being pushed down. This is also due to the fact that the decline is occurring at a particularly pivotal moment. Typically, the market declines in the first half of the year only to pick up in the second half. This is a logical consequence of seasonal milk production, which peaks in May and is at its lowest in November. This year, however, we are seeing the market actually sinking in the lead-up to the seasonal low point. There are, however, reasons that explain this atypical movement. Due to high milk prices and low feed costs, dairy farmers worldwide have significantly increased production, resulting in a large increase in supply in many countries. Additionally, the effects of bluetongue have led to a disrupted calving pattern, causing the production peak in Europe to arrive later this year. From now on, it will take at least another six months before the milk supply begins to decline seasonally again. Furthermore, production volumes in almost all of Europe and also in the United States and New Zealand are much higher than previously anticipated. Currently, the market for butter and cheese is still relatively good, according to producers, packers, and trading houses. The question is, however, how demand will hold up as the weak winter months approach in the new year. Additionally, Christmas and New Year do not fall on weekends this year, which is likely to present a significant logistical challenge. This is something that the weak market cannot really afford. Meanwhile, the euro remains strong, complicating overseas exports. In other words, there will be too much milk in the coming months. This is underscored by the spot prices, which have already dropped to around €30. An American analyst summarized it aptly last week: We need more beef and less milkfat. This implicitly suggests that dairy farmers should consider sending cows to slaughter to relieve the milk market. This also resolves another issue, as the long-scarce beef market is crying out for additional supply. Although the payout prices are falling, the current levels of around €50 are still interesting enough for dairy farmers to keep their foot on the gas. This means that further corrections are necessary. And those will happen, given the significantly decreased prices for butter and cheese. Price drops of €10 to perhaps €20 are a realistic scenario for the coming months. 2008, 2014, and 2023 Such large declines occur once every few years. In 2008 and early 2009, the milk price fell from over €40 to below €25. The cause at that time was the global credit crisis, which negatively impacted demand for dairy products. Ahead of the end of the milk quota in 2015, the market again plummeted sharply. There was also a decline at the beginning of the COVID-19 crisis. Not long after, the milk price skyrocketed when the raw materials market exploded due to the war in Ukraine. Subsequently, milk production in Europe increased significantly. The result was that the market became oversaturated 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 gradually recovered to price levels above €55, which we had seen until recently. Year Milk price drop Cause '08/'09 -€18 Credit crisis '14/'15 -€17 End of milk quota '22/'23 -€22 Aftershock of record prices In the meantime, the first processors have dropped below €50. With current knowledge, the milk price is expected to drop back to around €40 in the coming months and perhaps even lower. For Dutch dairy farmers, this is an extremely bleak scenario, considering the high manure disposal costs. However, the laws of the market are sometimes ironclad: Higher prices inevitably lead to lower prices, as is the case in many free markets. And that has been the European dairy market for over ten years now, with all the pros and cons that come with it.