Processing bottleneck costs money and helps milk price

Prices in the liquid dairy market have been extremely low for more than three months, while prices for solid dairy products - especially cheese and milk powders - have recovered strongly. Milk and whey powders are even quoting the highest prices in years. The question is how this can be. The most common explanation is that processing capacity is insufficient, but that is only part of the answer. Processing capacity is especially insufficient in Western or Northwestern Europe. For the first time in years, there is again good demand for milk powders from Europe. This is related to exchange rates, trade policy, logistics and market access. Europe competitive again Europe has the wind at its back, among other things because the EU, especially for skimmed milk powder, is so far this year the most competitive in the world market. Exports can be made in abundance. Cheese is a slightly different story, but production and sales of it are also running at full speed. Gouda (foil) cheese and mozzarella are doing better than cheddar. Production is at full capacity. Meanwhile the whey( powder) market is also strongly on the rise, as the benchmarks of DCA Market Inteliggence show. 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 become less profitable and many drying towers have been taken out of operation or demolished. Drying towers also struggled due to the high energy prices after the Russian invasion of Ukraine and the subsequent energy embargo. The Iran war is now causing a repeat, but that aside. In any case, drying capacity has fallen sharply in the Netherlands and neighbouring countries. FrieslandCampina closed powder towers at six locations in recent years or disposed of them (Milcobel included). It is not the only processor that did this. This is starting to have consequences, especially now that milk supply since the second half of 2025 has unexpectedly been high and the sales position has changed at the same time. Drying or fermenting There has been a lot of milk in the EU for months and not everything can be fully valorized. Much raw milk and liquid dairy is downgraded 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 absorb this, but even then value is lost. However, the limited processing capacity also has a downside. Undervalued Due to the limited drying capacity, various liquid products fetch less 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 that. A similar thing applies to skimmed milk concentrate. Last year the price was €700 to €800 per ton (ds) higher than now, while skimmed milk powder then brought in a comparable amount less. With whey there is also a processing problem, but this manifests itself differently. Part of the cheese whey is bought up at relatively high prices for processing into high-quality whey powders (WPC80, WPI). However, drying whey concentrate into ordinary whey powder is happening less and less. Skimmed milk concentrate is given priority on drying towers, because the margin here can rise to €1,500 to €2,000 per ton. Ordinary whey powder cannot match that. In addition, upgrading whey concentrate to WPC80 is more attractive. However, not all dairy companies can do this. A third stream is whey permeate and lactose. A growing share of the first product remains as a residual stream in the production of high-quality WPC's. The price of dried lactose is currently relatively high (above €1,400 per ton), but in the competition for drying capacity whey permeate also loses out to skimmed milk concentrate. Investment picture? The downside of this suboptimal processing is that powder production is constrained. As a result, powder is scarce and prices are high. This seems like an attractive investment picture, but the duration of the current situation is uncertain. Nobody knows how long the combination of high milk supply, limited processing capacity and strong export position will last. Anyone investing now in a new drying tower runs the risk that it will only be operational once the market has turned again. For high-quality whey powders, the situation may be different. Various companies expect demand to continue longer here and have already started investments.