Welcome to our weekly market update, in which we will tell you about the developments in dairy the past week and our expectations for coming week.
Welcome to the OpenDairy market update.
January has been an interesting month in the global dairy market. We started the month in a very unbalanced situation. The gap between farmgate prices and spot milk prices grew to more than 30 cents in Europe. We see that processors are correcting the farmgate prices rapidly, but we still have a long way to go.
In our december update we already mentioned the shift in valorisation. 2022 has been a great year for processors as farmgate prices were well below the commodity value of milk products and by december we saw the lines cross.
Since then, the gap only widened, and at a supersonic pace. Drying towers have been full since early January and many market players were looking for outlets of liquid milk products.
The current valorisation of milk commodities is still well below the farmgate prices today. The gap between the Dutch payout price and current commodity prices is more than 22 cents. This represents a loss of about 250 million euro in value every month, in the Netherlands alone!
When we assume the current rate of decrease in farmgate prices, the situation in April will still not be balanced. When we assume a stable commodity return, which is optimistic, we still see farmgate prices well trading above the commodity equivalent. The gap would decrease from 22 cents to 10 cents per KG.
Luckily, Europe is not the only region determining the sentiment in the dairy market. We see that the milk growth in the US is already slowing and we assume lower availability of commodities for the export markets in the coming months. This could provide some support in the global markets.
But all eyes are on the importing regions. Some countries are showing significant growth, while others are showing significant declines. But like one of our partners said; it doesn't really matter as long as China is not active. The Chinese will get back to work after the festive season and with the country opening up we could see some demand revival there. In the rest of the world, lower commodity prices should spark some growth as well. This combined with deteriorating farm economics in the second half of the year means we're in for a dynamic market in 2023!
Thanks for your attention and we welcome your remarks!