Grazing season starts: what will happen to the milk price?

The milk prices have dropped significantly in recent months, but the pressure has now eased. Not only has a bottom formed under the payment prices, but this has also strengthened in a short period of time. The outlook for the coming months appears more favorable than previously thought. This is a relief for dairy farmers at the start of the grazing season, although milk supply remains very high and processors are struggling to handle all volumes. In the Netherlands, all processors kept the milk price for March unchanged. Further declines do not seem likely in the short term. The main reason is that the raw material value of milk, due to rising prices of solid dairy products, has been above the payment prices again for the past few weeks. This has largely removed the downward pressure that characterized the market since last September. The Belgian Laiterie des Ardennes (LDA) has even slightly increased the advance milk price for February. The cooperative is heavily reliant on commodity markets such as mozzarella and skim milk powder in its portfolio. Both products have risen considerably in recent times, and this is directly passed on to the members. This is not entirely surprising, as the cooperative had already hinted that an increase was on the way. The pressure was also high, as the milk price of LDA had lagged behind other Belgian processors in recent months. In response, members threatened to leave. Against this backdrop, the increase is not only a correction but also a signal that sentiment in the dairy market has clearly improved. Spot market under pressureHow different is it on the spot market. The DCA benchmark for raw milk fell back last week to a level of €11.50 per 100 kilograms. In the first half of the year, the spot market often operates below the payment prices, but in 2026 the difference is large. The spot milk prices are more than three times lower than the payment prices. For now, the difference remains significant. As we approach the seasonal peak in May, there is indeed a lot of milk in Northwest Europe. Much more than factories can process. Surpluses are being sold at dump prices, sometimes costing factories money. Yet this weak spot market says less about the direction of the milk price than usual at the moment. Despite the ample supply, the dairy market has clearly gained ground in recent weeks. Skim milk powder is leading the way in this regard. This is notable; in recent years, the powder market provided little support to the milk price, and cheese and butter were the main contributors under the payment prices. Cheese and butter are also moving upwards, although at a more moderate pace. Skim milk powder also shows further upward potential. During the second Global Dairy Trade in March, an increase of 5.2% to $3,409 per ton was visible, the highest level since October 2022. Since mid-December, a price increase of nearly 40% has been observed. As delivery contracts extend further into the future, prices are also higher. Why the (powder) market is so strong is not easily explained. European powder towers are operating at full capacity, which normally puts price pressure on the market as there is a lot of product in the pipeline. At the same time, external factors are supporting the market. The rapid rise in oil prices is supportive of prices. Additionally, the war in the Middle East creates sentiment. At the same time, this also presents logistical challenges in getting product from A to B. And this region is an important market for European dairy. Room for a higher milk price?The improved market conditions are now also reflected in milk valorization. Based on butter and skim milk powder, this was again above €45 per 100 kilograms in mid-March, while cheese and whey are performing even better. The average milk price is still clearly below this, around €38 per 100 kilograms. In theory, there is room for an upward correction. The question is, however, how quickly processors will take advantage of this room. In recent months, payment prices have been above raw material values, putting margins under pressure. It is likely that factories will wait to see further recovery in the market before increasing the milk price. The sentiment remains erratic, and milk supply remains high. Overall, the picture has improved compared to a few weeks ago. The milk price has found support and even tends to rise again, but due to the ample milk supply and volatile war sentiment, the market remains vulnerable.