Heat and drought bring hope for the milk price

A year ago, milk prices were still at almost record levels, but over the past twelve months the trend was clearly downward. Until recently, the market outlook remained persistently bleak. Heat and drought are bringing new hope for the milk price. The almost extremely high supply figures put pressure on milk prices, which fell by €40 per 100 kilos to (well) below cost price. However, due to the heat and drought in June and July, sentiment in the market has suddenly turned around. Supply drops sharply Milk supply in France has fallen sharply, as has that in Germany. In the Netherlands too, factories report that supply during the hottest weeks was sometimes up to 10% lower, although official figures are still lacking. With lower temperatures, some recovery is taking place again, but it can be said that European milk production has now taken a few hits. By the way, it is not the case that dairy farmers are suddenly heading for roughage shortages, although concerns are increasing. The first half of the growing season still produced a reasonably good grass harvest in many regions. However, growth has now stalled and maize is also starting to wither in some places. Significant rainfall is urgently needed. A single shower will not be enough to get growth going again. The market responds For now, the market no longer wants to wait for that. The rapid rise in spot milk prices is proof that drought sentiment has entered the market. The DCA quotations for raw milk have risen sharply in a few weeks and, for the first time in fifteen months (!), are back at the level of payout prices. The recovery is not limited to the liquid dairy market. Cheese prices are also anticipating a possibly tighter supply. At the beginning of the summer, Gouda prices were still threatening to fall through the psychological barrier of €3,000 per ton, but now the upward path has been taken again. Other cheese varieties are also strengthening, with mozzarella currently leading the pack. The butter market is so far reacting less strongly to the declining milk supply. This is due to the stock buffer that is still present. Demand traditionally increases in the second half of the year, however, which means there is also some upward potential here. For the milk powder market, the chances of price increases are more limited, because sentiment on the world market is currently declining. Rising raw material value The raw material value of milk has risen back above the level of payout prices due to the recovery in the cheese market. Even so, it is unlikely that milk prices will already respond to that in August. The recovery in the market is still too premature for that.That does not mean that milk prices will remain stable in the autumn. Cheese prices, and butter too, often take further steps upward in autumn when milk supply declines seasonally. If August is also warm and dry – and the long-term forecasts point in that direction – this process could happen faster than many dairy companies had estimated. In that case, buyers will hedge earlier to avoid missing out, resulting in higher prices. Ultimately, that will also give the milk price room to rise again. The dairy market is a true weather market All things considered, it is still difficult at this moment to give a clear forecast for the milk price for the rest of 2026. The uncertainties are simply too great. The dairy market is above all a weather market. If the drought continues, milk production could come under further pressure and the milk price will have room to recover. If sufficient rainfall returns, part of the current rebound could disappear from the market again. At any rate, hope is once again emerging for the milk price, and it has been absent for a long time.