Demand for dairy remains a concern

Despite the seasonal peak in European milk supply, spot prices for dairy products have remained stable or even increased slightly. However, this price rise does not seem to be in line with demand for dairy products, which is actually lagging, according to sales figures. Rabobank provides an update.

Growth in global milk production has slowed down, with prices for basic dairy products expected to rise in the second half of 2023. Milk production in key export regions is expected to increase 0.5% year-on-year, after a 0.9% year-on-year decline in 2022. However, dry weather conditions in South America and parts of Europe could have a negative impact on production in the third quarter of this year.

Spot prices stable

European dairy prices have fallen in recent months, but spot prices have remained relatively stable since March and showed a slight increase in the second half of May. Despite this, European milk spot prices remain below €30 per 100 kilogrammes of milk, indicating that there is still a surplus of milk. Falling retail volumes confirm that dairy demand remains a concern. Factors such as inflation, higher costs and challenges in the foodservice industry contribute to the limited demand for dairy products.

The market is currently giving mixed signals, with rising spot prices but weak consumer demand and modest market volumes. Rabobank therefore expects the fragile price equilibrium to persist through the summer months, with basic dairy product prices trending towards a 2023 bottom.

European milk prices high

European milk prices remain high compared to other export regions. Although there has been a significant correction, many dairy processors in the major milk-producing countries lowered milk prices in April to around or below €45 per 100 kilogrammes of milk. Rabobank expects a modest correction in payout prices for the coming months. The provisional average milk price in the 27 EU countries for April is estimated at €48.83 per 100 kilogrammes of milk, which is still 5.6% higher than in April 2022.

In the first quarter of 2023, European dairy exports showed mixed results year-on-year. Skimmed milk powder and butter exports rose by double digits, while cheese, liquid milk and whole milk powder exports were disappointing. Buyers are currently increasing their coverage for the second half of 2023, offering dairy manufacturers and traders some financial relief.

Milk supply

In the Netherlands, milk supply increased in the first four months of 2023, up 3.8% on the previous year. Last year's low reference contributed to this increase. Although the decline in farm milk prices seems to have stabilised, current milk prices have led to a tightening of margins on Dutch dairy farms compared to last year.

It is important for dairy farmers to keep a good view on liquidity, especially as the 2022 tax assessment has not yet been taken into account by everyone. Rabobank stresses the importance of understanding liquidity management and encourages dairy farmers to contact their account manager for a discussion about their own liquidity position.

Rabobank.nl