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Recovery Still a Way Off?

European dairy markets remain very weak, with Eurex quotes for butter dropping again to €2933 and the SMP quote falling to €1683.  These prices as demonstrated on the table below are suggestive of a current milk value of 21-22c per litre. This weakness, against the backdrop of particularly strong US butter markets, and some optimism in New Zealand, is reflective of strong EU supplies. In its latest Short Term Outlook for EU Dairy markets, the European Commission predicted a 5% increase in European butter production for 2015, and an 8% increase in SMP volumes. They suggest that the additional butter volume should be “easily absorbed by the domestic consumption where butter is gaining market share over margarine”. They report that butter imports for domestic consumption are very low and that any butter that was imported was used an ingredient for products which were re-exported into a strong work market.

European Dairy Quotes

The real weakness, however, is in powder markets, exacerbated to a large extent by ongoing low oil prices. The European Commission report that the Brent crude oil price is expected to average $53 per barrel in 2015, close to 50% below 2014, and  to average $55 in 2016. While western consumers of butter and cheese will benefit from the low oil price via lower fuel prices, some of the major customers for powders are developing nations depended on oil revenues to fund their purchases.


The Ornua Purchase price Index dropped further, to 88.2 for November, a record low, although it reflects the value within the Ornua model as it is still significantly outperforming the Eurex index.

Ornua PPI

The latest USDA World Agricultural Supply and Demand Estimates, published this week, have reduced the milk production forecasts for 2015 and 2016 as milk yield growth slows.  The forecast for Butter prices for remainder of 2015 and early 2016 are raised as prices have remained stronger than expected into early December. Cheese prices are lowered slightly for 2015 and 2016 based on current price movements and expected larger domestic supplies. The outlook for SMP prices has reduced for the period as domestic and international supplies are expected to pressure prices. Class IV Milk prices compensates for the lower SMP price. The 2016 Class IV Milk price is lowered as the SMP price forecast is reduced. It should be noted that the US butter price, as reported by the European Commission is $6393/t, or equivalent to €5811/t or almost double the current EU quotes, while the reported SMP price at $1611 is equivalent to €1464, or around €200 below the European quotes.

The USDA Estimate raised the All Milk price to $17.05 to $17.15 per cwt for 2015 and lowered it to $15.95 to $16.75 per cwt for 2016. Meanwhile the University of Wisconsin, Madison, report the October All Milk Price to have risen slightly to $17.70. At today’s rate of $1.10 to the €, that would be equivalent to about 36c per litre.


By TJ Flanagan

Dairy Policy Executive