Seasonal reductions or price crisis? Full analysis of the dairy market [248th Edition of the DAIRY Newsletter]

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Welcome back to our newsletter!

In the latest edition of our newsletter, we look at key trends in the dairy market – from stable milk powder prices, to pressure on the cheese market over the festive period, to falling prices for dairy fats and cream. We will also consider how the seasonal increase in milk supply will affect the market balance and how long the downward trend in butter prices can continue. Will the market find new equilibrium points or are we in for another wave of unexpected changes?

Let’s see what has happened in the dairy market recently!

Milk powder

Prices for Skimmed Milk Powder (SMP) for food use are stable or slightly decreasing and are currently in the range of 2550-2650 EUR/MT. Fresh SMP is in moderate demand, especially in the EU market. It is worth noting that recent transactions with Algeria indicate strong interest at the lower end of the price range.

For SMP for feed, prices fell slightly to 2450-2500 EUR/MT for Q1 delivery, reflecting seasonal variations in demand and ample milk supply. Skimmed concentrate prices also reflect this trend, currently standing at 2050-2150 EUR/MT FCA Germany, with offers below 2000 EUR/MT over the Christmas period.

Cheeses

Cheese prices are under pressure, with Gouda priced in the 4350-4450 EUR/MT FCA range. Mozzarella is seeing significant price declines and is currently trading below 4000 EUR/MT FCA as customers appear reluctant to make large deals before the end of the year. This trend is also consistent across other cheese types – Christmas shopping is mostly over and buyer activity remains weaker in Q1 as well. Producers face challenges in balancing supply as the seasonal increase in milk supplies increases price pressure.

Cagliata is also seeing a slight drop in prices, placing it in a competitive price range, generating moderate buyer interest, but still facing difficulties due to weak demand.

Emmental remains hard to find and is priced at 4700-4900 EUR/MT FCA, reflecting its premium nature. In contrast, Edam, more competitively priced at 4250-4350 EUR/MT FCA, maintains stable buyer interest.

Fats

Butter prices continue to fall, with Q1 contracts at 6700-6900 EUR/MT. Market sentiment points to potential further reductions as cream prices remain high at 9500-9700 EUR/MT FCA over the Christmas and New Year period. The large gap between cream and butter prices creates challenges for price corrections in the butter market. Forward curves suggest further price declines in Q1 and Q2, although producers’ reluctance to adjust prices quickly may limit immediate reductions. Retail demand remains stable, which is partly supporting prices.

The Anhydrous Milk Fat (AMF) market remains stable with prices in the 9700-1000 EUR/MT range. Export performance is solid, driven by demand from the confectionery sector preparing for seasonal production, cushioning price declines in the market.

Liquids

Cream prices have seen significant declines, reaching 9500-9700 EUR/MT FCA over the festive period. Further reductions are expected, with forecasts suggesting that prices could fall below 8700 EUR/MT in January. The wide price range reflects the varying dynamics of demand in Europe, with different regions experiencing different levels of market activity. Cream remains a key ingredient in many dairy products and its availability should increase with higher milk production in the coming months.

Skimmed Milk Concentrate (SMC) remains competitively priced at 2050-2150 EUR/MT FCA Germany. Price stability reflects continued demand for concentrated milk products, particularly for export and industrial uses. Increased milk procurement over the winter period has ensured a steady supply, supporting current price levels. SMC’s role as a cost-effective alternative to SMP and other dairy ingredients continues to strengthen its position in the market.

The seasonal increase in Milk procurement is influencing lower spot prices for liquid products, currently priced in the 600-670 EUR/MT range depending on the region. The upward trend in milk supply leads to greater availability at processing plants. The seasonal peak in milk production is likely to continue to put pressure on prices, especially as processors focus on processing surplus milk into powders or cheeses for long-term storage and sale.

Whey powder

Sweet Whey Powder (SWP) prices for food use remain stable, in the 930-1000 EUR/MT range. Feed whey is priced at 920-930 EUR/MT for Q4 and Q1. Reduced cheese production has reduced whey supply, stabilising prices despite steady demand. Whey protein products continue to dominate the market. Whey protein isolate (WPI) is at a premium, currently priced at 18500-19500 EUR/MT, reflecting strong demand and limited availability. Meanwhile, whey protein concentrate (WPC 80) remains at around 11000 EUR/MT as buyers complete their purchases for Q4 and early Q1. High margins on these high-protein products continue to encourage producers to produce them at the expense of traditional SWP, keeping prices stable in these premium segments.

What else?

North America

In response to the rapid spread of the H5N1 virusamongdairy herds , the US will introduce mandatory testing ofraw milk for avian influenza from 16 December. The programme willbegin in six states, includingCalifornia and Pennsylvania, involving regular sampling of dairytanks and processing plants. The aim is early detection and control of outbreaks of infection, which have affected more than 700 flocks in 15 states since March. Although pasteurisation effectively eliminates the virus, authorities recommend avoiding the consumption of raw milk due to the health risks.

Europe

In Europe, English dairy farmers are facing a significant drop in income, with average farm income reduced by 68% to £70,900 by 2023/24, mainly due to falling milk prices.

This sharp decline follows two years of gains, highlighting the economic challenges in the dairy sector. The reduction in income is attributed to lower milk procurement prices and increases in variable and fixed costs of 3% and 11% respectively. In addition, almost a quarter of dairy farmers reported losses, highlighting the financial burden on the industry. The phasing out of the Basic Payment Scheme, which currently accounts for 40% of profits, is likely to exacerbate these challenges in the coming years.

Asia

In Asia, Indonesian dairy farmers are calling on processors to prioritise the purchase of locally produced milk over imported alternatives. The influx of cheaper imported milk, particularly from Australia and New Zealand, has resulted in a significant drop in demand for domestic milk, causing financial problems for local farmers. In response, the Indonesian government is considering introducing policies mandating the purchase of local milk and reviewing import regulations to support the domestic dairy industry.