Dairy farmers benefit from rising prices – initially

Milk prices have risen steeply in Germany since mid-2016. In March the “ife Rohstoff Milch” indicator, which is regularly published by the Kiel-based Institut für Ernährungswirtschaft (ife) and which is derived from butter and skimmed milk powder prices, was 52% above the figure of the previous year. This – in combination with low feed prices –improves business conditions for dairy farmers significantly.

The year-to-date decline in European milk production and the dynamic increase in the consumption of higher-fat dairy products (fats market) are causing the butter price to increase very steeply. But in the protein market the price of skimmed milk powder (SMP) has fallen significantly due to the adequate supply.

So far, the volume of milk produced has fallen not only in Europe, but also in the other important exporting countries such as Australia and New Zealand. Milk output has only increased in the USA because of the good weather conditions and low animal feed prices.

We expect, however, that the increase in milk prices will lead some dairy farmers in Europe to increase their production volume again in the course of the year. In Poland the supply side has already adjusted to the increased price level. The higher herd count in the USA as well as the low prices for animal feeds suggest that the positive production trend will continue. Australia and New Zealand, by contrast, will not be able to increase their production significantly because of the excessively wet weather conditions.

At the aggregated level we assume that the steep rise in milk prices during the last few months will lead to a marginal increase in the global supply. As a result, export volumes will also increase slightly. Nevertheless, the global price outlook for milk is promising as imports will increase more strongly on the back of the highly dynamic growth in Asian (Chinese) imports.

Because of the positive global setting for the world-wide milk price trend, German price levels will also develop correspondingly solidly. There exists a clear statistical correlation between the global and German milk price anyway.

The market expectations (futures) for the future butter and SMP price trend that are traded on the European Energy Exchange (EEX) in Leipzig indicate that averaged out over the full year the milk price (ife) will be 24% higher in 2017 than in 2016.

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *