9 April 2020: It all boils down to milk

Trying to guess where the actual market is going gets harder, but the factors affecting it are becoming more transparent. It all boils down to milk. The plain fact is that across the entirety of Europe, the plunge in demand for milk for catering, ready meal production and the restaurant trade spells short term ruin for the dairy industry, and the severity of that disaster depends on its length.

In the UK, Müller have announced that they require their producers to reduce milk output by 3%, and are encouraging dairy farmers to feed the excess raw milk to calves (all very natural, but haven’t they heard of Johne’s Disease?). Announcing this at the height of the spring calving season has big implications for later lactation for the cows just calved, potentially causing a milk shortage exactly when demand peaks again. Liquid milk prices across Europe are plunging, and I didn't think I would be saying this during 2020, but the Intervention price of €1698 is now the new floor in the market, as the Netherlands already reports €1750 as a paper price.

Skim milk powder in the Netherlands is down by 8.5% for edible grade and 6.5% for feed grade. The edible grade has plunged by €200 in the last week, but this is on paper, as the cheapest offer of physical feed grade material in the spot position is still above €2000. The dynamics of this price collapse have impacted on whey protein concentrate and the market reaction has been to cease production rather than joining a race to the bottom. This in turn has affected the whey price, and again we see falling paper prices well below physically available offers.

The only advice I can give in these unprecedented times is to buy load over load with delivery dates on, and I say this because I predict that the unprecedented demand levels we have witnessed in the last month will subside, especially on the calf milk replacers, orders will be postponed, and only then will the market find its new level. Possession is nine tenths of the law, as they say.

BDC agri is the UK broker for Lacto Production milk and whey powder products.

For further information and prices, contact Greg Dunn on 01206 381521 or g.dunn@blackdiamondcommodities.com


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