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

Other Cheese

Germany

Published Nov 17, 2023

EU farm-gate raw milk prices rose by a slight 0.04% MoM in Oct-23, but have declined by 25.37% since their peak in Dec-22. This drop is attributed to increased supply and reduced demand. Despite a 0.65% YoY increase in EU milk deliveries from Jan-23 to Jul-23, the impact of lower global milk product quotes is expected to persist in H2-2023 and 2024. While EU dairy product prices have seen declines since their 2022 peaks, they all registered MoM increases in Oct-23. EU raw milk and dairy product prices are expected to rise in the coming months due to Christmas holiday demand, with further increases in 2024 due to expected reduced milk production. EU dairy processors are likely to prioritize cheese production in response to global demand, particularly from China, enhancing profit margins and contributing to the industry's overall sustainability.

EU Raw Milk Price Trend

Farm-gate raw milk prices in the European Union (EU) have been trending downwards since the beginning of 2023, albeit slower since the summer months. The price of farm-gate raw milk averaged USD 46.95 per 100 kilograms (kg) in Oct-23, a slight 0.04% month-on-month (MoM) increase but a significant drop of 25.37% compared to the peak of USD 62.91/100 kg in Dec-22. Notably, raw milk prices recorded from May-23 to Oct-23 have consistently lingered below the levels registered during the same period in 2022, although they still remain above the five-year average of USD 43.45/100 kg.

Source: CLAL.it; Tridge

The decline in raw milk prices in 2023 is attributed to an increase in supply coupled with reduced demand. Favorable milk prices and more affordable feed costs prompted EU farmers to boost production throughout 2022 and into 2023. According to the European Commission (EC), EU milk deliveries grew by 0.65% year-on-year (YoY) from Jan-23 to Jul-23, with notable increases of 2.6% YoY recorded in Germany, the Netherlands, and Poland. These price upticks compensated for a decline in production in France and Italy. However, the ongoing impact of lower milk product prices on global markets is expected to continue influencing producer prices in H2- 2023 and into 2024 negatively. Consequently, cow's milk deliveries in 2023 are projected to surpass those in 2022 by a mere 0.14%. Subsequently, EU cow's milk deliveries are anticipated to marginally decrease in 2024, returning to around 2022 levels of 145.3 million metric tons (mmt).

Anticipating increased milk production, the United States Department of Agriculture (USDA) foresees factory use consumption in the EU reaching 125.46 mmt in 2023, a 0.32% improvement from 2022. This upward trend in factory use is propelled by a reduction in domestic consumption of fluid milk and a decline in exports. However, EU milk production is expected to decrease due to the forecasted reduction in cow herds in the coming year. This could lead to a slight 0.13% YoY drop in EU factory use in 2024. This shift will influence the decisions of dairy processors regarding the utilization of available milk.

EU Cheese Price Trend

The European dairy processing industry continues to prioritize cheese production, given strong domestic consumption and robust export demand for the product. In 2023, an anticipated rise in milk availability is expected to lead to a 0.15% YoY increase in the supply of cheese in the market. Cheese prices in the EU averaged USD 3,865 per metric ton (mt) (EUR 3,579/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 (EUR 4,764/mt). Despite the dip, cheese prices remain relatively high compared to milk powders, a trend projected to persist in 2024.

Source: CLAL.it; Tridge

With the expected milk supply reduction in 2024, the EU dairy industry is likely to allocate a larger portion of the milk pool to cheese production over other dairy products. Additionally, lower demand from China for milk powders might prompt a greater focus on cheese production by European producers, leading to increased exports and domestic consumption. The potential growth in consumption could be fueled by developments in the hospitality and tourism sectors, along with the broader recovery of the EU economy.

EU Butter Price Trend

Butter prices in the EU averaged USD 5,089/mt (EUR 4,712/mt) in Oct-23, a 6.67% MoM increase but a substantial 34.92% decline from their peak in Jun-22 at USD 7,820/mt (EUR 7,241/mt). Despite this drop, EU butter prices have consistently outpaced those for cheddar, skimmed milk powder (SMP), and whole milk powder (WMP). The EC notes a 1.9% YoY increase in EU butter production from Jan-23 to Jul-23, propelled by ample milk availability despite a 38% YoY price decrease. This production upward trend is expected to persist in H2-2023 but at a moderated pace, resulting in a 0.48% increase for 2023 compared to 2022. However, the USDA anticipates a 0.95% decrease in butter production in 2024 compared to 2023 due to the expectation of a limited milk supply, favoring cheese output.

EU Skimmed Milk Powder (SMP) Price Trend

SMP prices in the EU averaged USD 2,701/mt (EUR 2,502/mt) in Oct-23, a 9.4% MoM increase but a significant 39.31% decline from their peak in Apr-22 at USD 4,452/mt (EUR 4,122/mt). SMP prices have consistently stayed below those of cheddar, butter, and WMP over the years. Despite a modest YoY decrease in EU SMP production from Jan-23 to Jul-23, exports demonstrated a robust recovery, propelled by tenders by Algeria for milk powder imports and strong demand from Saudi Arabia and Morocco. To meet this demand, EU SMP production might experience a slight growth in H2-2023, while overall output remains stable. Simultaneously, EU exports could see a 15% YoY increase, while domestic use might decrease by around 2% YoY in 2023, influenced by reduced use of SMP in processing. SMP production is anticipated to remain stable in 2024, with lower exports compared to the strong recovery expected in 2023.

EU Whole Milk Powder (WMP) Price Trend

WMP prices in the EU averaged USD 3,754/mt in Oct-23, a 5.78% MoM increase but a remarkable 32.37% decline compared to their peak in May-22 at USD 5,551/mt (EUR 5,140/mt). Despite the expectation of decreased export volumes due to heightened competition from New Zealand in H2- 2023, the increase in EU milk powder exports might prevent a decline in WMP production. WMP exports are expected to be 3% higher in 2023 than in 2022, with a smaller-than-anticipated reduction in domestic use at around -2% YoY. This is driven by lower prices that could boost WMP usage as an ingredient. EU WMP production is forecasted to decrease by 1.6% in 2024 compared to 2023 levels due to lower milk availability, with a preference for cheese production over other dairy products.

Looking ahead, prices for raw milk and dairy products in the EU are projected to experience an upward trend in the upcoming months, driven by the expected surge in domestic demand with the approach of the Christmas holidays. Further increases are anticipated in 2024, influenced by the foreseen drop in milk production resulting from the projected reduction in the cow herd. EU dairy processors are likely to prioritize cheese production over other dairy products, responding to heightened global demand, particularly from China. This optimistic shift in pricing is poised to enhance profit margins for farmers, contributing to the overall viability and sustainability of the dairy industry.