W46 Dairy Update: European Price Dynamics Amid Production and Demand Shifts

EU Raw Milk and Dairy Product Price Fluctuations Amidst Production and Demand Shifts

In W46 in the dairy landscape, Tridge’s analysis indicates that European Union (EU) farm-gate raw milk prices rose by a slight 0.04% month-on-month (MoM) to USD 0.47 per kilogram (kg) in Oct-23. However, prices have declined by 25.37% compared to the peak of USD 0.63/kg in Dec-22. This drop is attributed to increased supply and reduced demand. Despite a 0.65% year-on-year (YoY) increase in EU milk deliveries from Jan-23 to Jul-23, the impact of reduced global milk product quotes is expected to persist in H2-2023 and 2024.

Cheese prices in the EU averaged USD 3,865 per metric ton (mt) in Oct-23, a slight 0.13% MoM increase but a significant 24.88% drop from their peak in Oct-22 at USD 5,145/mt. Butter prices, increasing by 6.67% MoM to USD 5,089/mt in Oct-23, have consistently outpaced other dairy products. While skimmed milk powder (SMP) prices rose by 9.4% MoM to USD 2,701/mt in Oct-23, they remain below those of other dairy products. Whole milk powder (WMP) prices grew by 5.78% MoM but dropped by a notable 32.37% from their peak in May-22.

EU raw milk and dairy product prices are expected to rise in the coming months due to Christmas holiday demand. Further price increases are expected in 2024, attributed to projected reduced milk production in the upcoming year. EU dairy processors will likely prioritize cheese production in response to global demand, particularly from China, enhancing profit margins and contributing to the industry's overall sustainability.

Ukraine’s Raw Milk Prices Surge Amid Limited Supplies, Rising Production Costs, and Strong Demand

Ukraine’s Association of Milk Producers reports that raw milk prices increased by an average of USD 0.019 in early Nov-23, driven by limited supplies, rising production costs, and strong consumer demand. The average purchase prices for both extra-grade and higher-grade milk reached USD 0.38/kg without value-added tax (VAT), a USD 0.023 rise compared to Oct-23. Premium milk prices range from USD 0.36 to 0.40/kg without VAT, and the first-grade milk's average price reached USD 0.35/kg without VAT. The Association of Milk Producers attributes this price surge to a shortage of raw milk, competition among processing enterprises, and elevated logistics and feed costs.

Despite disruptions from the Russia-Ukraine conflict, skilled labor shortages, and cow population decreases, dairy product consumption in Ukraine has risen in 2023. However, a slight decrease in extra-grade milk prices is anticipated in late Dec-23 due to fulfilled pre-new year contracts. The strike of Polish carriers, who plan to block border crossings until early Jan-23, can also restrain purchase prices. This situation might lead to an increase in exchange goods in Ukraine, possibly influencing raw milk prices. However, a significant drop is unlikely due to sustained consumer demand for dairy products.

UK Dairy Producers Decline Amidst Falling Milk Prices and Elevated Production Costs

The Agriculture and Horticulture Development Board (AHDB) estimates that dairy producers in the United Kingdom (UK) reached 7.5 thousand as of Oct-23, a 4.5% YoY decline. This drop could be attributed to the reduction in farm-gate milk prices. The Department for Environment, Food and Rural Affairs (Defra) indicated that UK average milk price was USD 0.45 per liter in Sep-23, a drop of nearly USD 0.16 compared to the same period in 2022. While inflationary pressures on critical farm inputs have eased, costs such as energy, fuel, feed, and fertilizer remain historically high, introducing market volatility and tightening farm profit margins.

Although the average milk production per farm has grown YoY, it has remained steady compared to the Apr-23 volume estimates, signaling a shift toward larger farms. Notably, with high milk prices in late 2022, many farms sought increased yields from their cows. However, in 2023, the focus has shifted to enhancing efficiency and reducing on-farm costs. Favorable grass growth during most of the 2023 season, surpassing the 2022 season and the five-year average, has sustained milk yields from grazing cows. In recent months, UK milk production has started to ease, with volumes in Sep-23 and Oct-23 down YoY by 1.3% and 2.7%, respectively. This trend is anticipated to continue into the 2024 season.