While farmgate milk prices started to decline in February, commodity (butter, SMP, cheese) prices suffered price collapses throughout January and a total sentiment change, with prices rallying up during the first two weeks of February.
Friesland Campina and Arla, two of Europe’s largest dairy processors, reduced farmgate prices for February. Friesland Campina moved its farmgate price down by €0.04/kg to €0.56/kg for February, while Arla reduced its UK farmgate price to 48.47p/litre, a decrease of 2.65p/litre. Friesland Campinas prices have remained around €0.60/kg since July, and Arla has kept its farmgate prices stable since November. Spot milk prices, on the other hand, have started to increase again over the past two weeks in both Europe and the UK, even though milk intakes have increased and availability remains stable. Prices have been supported by better demand and the general upward trend seen in the dairy market.
For reference, the Mintec Benchmark Prices [MBP] for Milk EXW United Kingdom [Mintec Code: JQ45] was assessed at £0.35/litre on 9th February, up 9% on the week. The MBP for Milk EXW Germany [Mintec Code: ED24] was assessed at €0.35/kg on 9th February, an increase of €0.05/kg on the week.
While buying activity of butter has been limited throughout January, with buyers staying out of the market anticipating further price declines, more activity has been reported over the past two weeks, with more buyers returning to the market to cover open spot demand and volumes for Q2 2023. While the European butter price fell by 17%, or €850/mt in January, the first two assessments in February already show a strong price recovery. The assessment for Unsalted Butter EXW European Union [Mintec Code: J116] was made at €4,450/mt, up €150/mt w-o-w, and up €350/mt from the last assessment in January.
A similar picture was reported on the SMP market. While stocks remain available, increased buying interest has turned the sentiment bullish over the past two weeks. Buyers across the EU have been reported back in the market covering spot and demand for Q2 2023. However, buyers are still unwilling to commit to full volumes, as several fundamentals still contradict the current bullish market sentiment. Sellers who have been pushed lower by buyers throughout December and January are now taking the initiative and pushing prices upwards. However, market sources seem uncertain about how much more buyers are willing to pay before they will step out of the market again. For reference, the MBP for Skimmed Milk Powder EXW Europe [Mintec Code: J117] was assessed at €2,500/mt on 9th February, up €70/mt on the week.
The sudden change in dairy market sentiment caught many participants in the dairy market off-guard, as fundamentals remain largely bearish. The only fundamental that has changed since the beginning of February is the return of demand, leading to strong uncertainty among market participants about whether these upward moves are going to be a longer trend, or only a temporary market reaction to increased buying interest.
