Daily Dairy Digest: 20th of January

Yesterday was an active day with buyers and seller plenty around to make the business work. And as commonly seen on a Thursday, the market stabilized a bit after dropping again to lower prices in the last 3 days. It's a good moment for some of the producers to catch up with the market so we also hear a lot of sales from producers at levels we have been reporting in the previous days. 

At the same time, the market for liquids remains weak. The cream did find a floor and traded between € 4100 and € 4300, SMC traded between € 1700 and € 1850 and raw milk is roughly available between 26ct and 30ct in the Netherlands and Germany. Looking at the prices for liquids we might see a bit more pressure next week. One of the liquid traders told us the milk volumes are growing week on week, but the milk is also full of fats and proteins. The big question for next week is where liquids will have to be taken to. Most factories are at the max of their capacity, or at least they claim to be.

In their fight to keep commodity prices high, the strategy seems to have three different focuses from the producer's side. The first is to keep as many litres of liquids out of the production of butter, cheese and powders. But by selling cheap liquids on the free market, we feel coops are giving great business opportunities to traders and processors who don't have any fixed contracts with farmers to produce commodities well below the market price. In Poland we hear factories are buying the cream at € 4200,- processing this into butter with a cost price of € 3500,-, and selling this at € 3850. Some are making great profits at the moment. We hear some coops are fearing financial difficulties as they are paying 60ct to the farmers and they are selling their milk below 30ct. This 50% loss isn't sustainable for long.

Another strategy seems to be to keep the produced product from the market and store it in a warehouse to be sold at a later stage when the market is giving a better return. A valid strategy, but finding storage space and paying for it, isn't as easy as it was a year ago. Storing one mt of butter costs about € 5,- per week, excluded of handling and financing costs. So those storing butter at € 4500,- in the hope to sell it in the second half of the year seem to be aiming for prices around € 5000,- or higher. We agree we will trade butter again with a € 5... in front of the price, but we expect to sit this price in the summer of 2024 rather than this summer.

The last strategy seems to be to export butter and keep it off the EU market. We think this might be the most effective strategy. Because selling it into Europe doesn't do anything for the EU supply and demand balance, but selling it into Asia or Oceania does lighten the pressure on EU stock. We hear german and dutch butter and cheese being sold at prices below € 3800,- and cheese below € 2700,-. So by selling a bit of volume below the EU market price they hope to keep the pressure of the price a bit and stabilize EU prices to avoid more losses on their commodity sales in the EU. The tricky part of this strategy it should be a joint tactics from multiple producers. Because if only one producer does this, he is taking all the losses, while his colleagues profit from more stable prices. But if the all do it together, export destinations will drop quickly in prices as well. It is a tricky line to balance on.

So there are efforts made by producers to turn the tide on lower prices, if they will be successful we will have to see. Looking at the amount of milk, combined with the EU internal demand and the limited export opportunities we think it's too little too late to have a real impact. But it might slow down the spread of the price correction a bit.