Positive signs hide underlying dairy weakness

If you look at the positives that the liquid dairy market is showing this week, you might think that it's heading towards market recovery. However, that is not what is happening. The cheese market remains weak, although various parties believe that the bottom is now in sight regarding prices. The picture on the milk powder market is mixed, while butter remains weak. That last point is not what you would expect with the Christmas holidays and the New Year approaching. Normally, milk fat becomes more expensive at this time. The development of the cream price meets that expectation, but the butter market as a whole is weakening slightly further. This is because there is a kind of division in the butter market. The demand for fresh consumer products is good. For butter in small packaging sold by German discounters, prices start at around €5,500 per ton. That is not bad, but that price includes a margin for chain parties and processing in small packaging. At the other end of the spectrum, Irish winter butter is also offered ex-factory for about €4,700 per ton, and products from large European processors start at €4,800 per ton. Such products are very suitable for large bakeries and other industrial processors, which also influences the market. The market for milk and whey powders also shows a mixed picture. Prices for skim milk powders are reasonably stable and low due to high milk powder production. This is not the case for the dairy processors themselves, but mainly for companies that buy up excess skim milk concentrate from the mentioned processors, dry that product themselves, and then sell it on the market at a lower cost price. A weak demand also plays a role here. On a positive note, the export demand for milk powder is increasing, and stocks may dwindle slightly. Skim milk powder is now being sold for prices between €1,950 and €2,070 per ton, depending on demand and destination. The whey powder market shows a different picture. On one hand, the quotation for whey powder for food is slightly declining, while the quotation for whey powder for feed is rising significantly and is nearing that of the normally more expensive food whey. A lot of whey powder is not being produced either, partly because many towers are being used for the production of skim milk powder. There is more profit to be made there. This drives up the whey powder price, especially due to demand from the feed industry. If milk supply decreases slightly in the coming weeks, this situation is expected to change again. The signals from the cheese market are still all red. The quotations for Gouda and Edam foil cheese have dropped the most this week among the cheeses, but other types of cheese are also still showing a loss. The cheddar market is reportedly the weakest. Nevertheless, it seems that the bottom is gradually coming into sight for cheese, and the moment is near when prices will stabilize, so the expectation goes. However, very little certainty can be given on that. First, milk production must decrease, then market recovery can occur. In the liquid dairy sector, however, everything is positive. The supply of raw milk is lower than in previous weeks due to seasonal developments and also because far fewer factories are currently under maintenance and repair. The prices for raw milk immediately shot up a few cents, and concentrate and cream also became more expensive.The valorization of the delivered milk continues to decline meanwhile. At the commodity level, the supplied milk brings in about €35 per 100 kilos. Fortunately for dairy farming, not all milk is processed into commodities/bulk products. Much added value is always created in the processing into consumer products and other specialties. According to the German IFE in Kiel, the raw material value in October was €39.10 per 100 kilos. For the Dutch situation, more than €1 per 100 kilos can be added to that. Still, that is considerably below the DCA milk price index (of published milk prices) for that month.