Commodity prices on both the European spot (traded) market and also on the futures market continue to fall markedly, with butter selling for as low as 4,500 (3,989), according to some traders.
This will have been made on a milk price of about 55-60 euro cents (49-53p).
There are plentiful supplies, including frozen butter, which one trader stated was being moved from one trader to another without necessarily ending up with a final customer. There is no obvious increase in prices for Q2.
Meanwhile, SMP is selling for about 2,600 (2,305) and the net milk price realised from butter and SMP is about 30p.
Cream in the UK is also suffering as few processors want to make butter. It is now between 1.75 and 1.85, which is the lowest it has been since September 2021.
Arguably though, cheese is now worse than the fat market. There seems to be virtually no demand, and buying interest is very low indeed. Gouda, for example, is falling towards 3,000 (2,659) and mozzarella is already as low as 3,000 (2,659).
UK Cheddar is also taking a hit from the low demand and high volumes, with prices for mild now down to 4,250 and with forward prices for Q2 starting with a 3, traders say.
All of this means that milk for cheese prices will also start with a 3 a few months in Q3. The outlook is very bearish indeed.
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Futures drop below 4,800 for butter
EU butter futures have dropped below 4,800 (4,255) for all contracts from March to June, the first time they have dropped below this level since October 2021.
In the first two weeks of January, they have dropped more than 300 (266) to average 4,750 (4,210), with Q2 prices being below 4,700 (4,166).
There is still a significant difference to New Zealand butter prices though, which are down at 4,200 (3,723) now. Sellers will hope that is not the floor.
EU SMP futures have also dropped again and are now below 2,700 (2,393) for most contracts, with the average now at 2,650 (2,349).
The combination of butter and SMP now convert into a milk price equivalent after transport, costs and a processor margin in the low 30p zone.
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GDT off to bearish start in 2023
The year has started as 2022 left off, with the GDT auction in a bearish mood, with all commodities falling by 2.8%. Some 15 of the last 20 auctions have now been down.
It took the average price down to US$3,365 (2,752), which is now its lowest price since December 2020. WMP dropped 1.4% to $3,208 (2,624) and SMP fell 4.3% to $2,838 (2,321).
Butter dropped 2.8% to $4,479 (3,663), but those percentage falls were nothing compared to butter powder, which was down 12.9% to $2,556 (2,090).
There were some inflated sales at the previous auction though, which contributed to the percentage drop. The commodities convert into a UK milk equivalent price of about 30p now.
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Falling energy costs help ease processor woes
Energy costs have fallen significantly recently, which will technically help ease milk price pressures by making it cheaper for processors to convert raw milk into products.
According to milk price expert and Dairy Farmer contributor Steven Bradley, processing costs fell by 3.52ppl to 7.6ppl in December.
This is largely on the back of the Ofgem wholesale prices for electricity and gas falling by almost 60% each.
The drop in energy prices decreased the cost of butter manufacturing by 102/tonne to 304/t, equivalent to a fall of 0.5ppl to 1.5ppl.
The manufacturing cost of SMP decreased by 312/t to 558/t, pushing the processing cost down 2.9ppl to 5.2ppl. The overall cost for producing butter and SMP is now 6.9ppl, down from a peak of 12.6ppl in October.
The fall in energy is the only significant positive relating to milk prices.
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UK milk volumes down 0.5% for 2022
Production in December will come in at about 1,236 million litres, which will be 18.4m litres and 1.5% more than 2021.
Total volumes for 2022 are likely to be 14,900m litres, which will be 85m litres and about 0.5% lower.
Q1 volumes were 2% down on 2021, Q2s were down 1.6%, Q3s down 0.73% and Q4s were up 2.8%.
Current production is still ahead of last year, by about 1.2%.
Irish milk volumes are soaring, however. In November they crossed the 500m litres threshold for the first time for the month and are nearly 7.5% more than last year.
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