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Polish Milk Chamber: sale of butter from government reserves will not change market situation
In recent quarters, divergent trends in the global dairy market have persisted. On the one hand, there is a strong increase in butter prices, which have reached record levels. Although on a markedly smaller scale, the prices of cheese and whole milk powder are also rising. On the other hand, skimmed milk powder prices remain relatively stable. As a result, the relationship between the prices of milk fat and protein, reflected by the difference between the prices of butter and skimmed milk powder, has reached a record high in recent months, indicating a strong imbalance in the market for milk fat and protein, according to an analysis by Credit Agricole.
Three factors have contributed to the strong increase in butter prices currently observed. First, milk supplies have been declining for three years in New Zealand (mainly due to adverse weather conditions), which is the world’s largest exporter of butter (about 48% share of global exports). Second, it takes a relatively large amount of milk to produce butter compared to other dairy products. Moreover, in the process of its production, skimmed milk is produced, the prices of which are currently low. Hence, it is more profitable for dairies to produce cheese, on which they earn a higher margin. Thirdly, global consumption of butter is growing, which, given the limited supply of milk and the relatively high consumption of milk in butter production, further drives up its prices relative to other dairy products.
The supply of milk among the world’s major dairy exporters remains relatively low. In Q3 of this year, the dynamics of milk deliveries among key dairy exporters (the EU, New Zealand, the US, Australia and Argentina) was unchanged compared to Q2, at -0.4% y/y. The decline in deliveries is mainly due to lower milk production in the EU and the US. The current dairy season in Oceania has started exceptionally well, nevertheless, we do not expect a significant increase in milk supply from this direction.
There continues to be a weakening of global demand for dairy products. In the period I-VIII, the export volume of dairy products increased by 0.4%. Global demand is constrained by lower purchases from China, which decreased by 12.0% in I-VIII, with skimmed milk powder imports declining the most (-35.1% y/y). Lower orders from China are supported by the country’s growing degree of self-sufficiency in milk production, hence we do not expect them to increase markedly.
“In the coming quarters, we forecast stabilization of global milk supply. At the same time, the economic recovery we expect in Europe and the US will support increased demand for dairy products. Consequently, we forecast that prices in the milk market will follow an upward trend. Agro-meteorological conditions remain a risk factor for such a scenario. Taking into account the situation on the global milk market, we forecast that the milk procurement price in Poland has already reached its local minimum and will follow a mild upward trend in the coming quarters. Thus, we expect that at the end of 2024, the milk procurement price in Poland will be around PLN 240/hl, and at the end of 2025 – around PLN 250/hl,” Credit Agricole forecasts.