The negative gravity in milk powder markets looks like it will experience the serious G forces of a correction sometime very soon, possibly the next fortnight, as the sums just don’t add up at the moment.
Sweet whey is the first contender for a correction. The severely opposing forces of a collapsing market against a significant global reduction in consumer demand for cheese and significantly higher drying costs suggest the impossibility for the spot market to have plunged another 7% in the last week to €670, but that is what has happened on the headline Dutch market. However, storm clouds are gathering for the bottom-pickers, as the declines in regional markets in Germany and France have not been as stark, and only smaller parcels are offered at desperate prices. True, the headline price for liquid milk has started to fall, but nothing like the discount under the cost of production of sweet whey.
Looking at the graph of the last fifteen years shows whey only spent four years cumulatively under the current price, and milk and the cost of drying it, employing people to do the job and borrowing money to fund it were all at a fraction of today’s prices for the whole time period.
Skim milk is a different kettle of fish, as although it has lost another 4% during the week, it still sits over the €2000 mark, the rough average for the last decade or so. Skim could take longer to turn round, as supply is still easy, but the fundamentals remain that liquid milk still costs twice what it did, and drying it even more so, so where’s the incentive to produce skim milk? Let’s face it, the Intervention sting of 2018/2019 signalled the end of cheap skim so how much further can this slide sustain?
BDC agri is the UK broker for Lacto Production milk and whey powder products.
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