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The milk fat market under pressure: explanations

5 May 2017

The Management’s word

The situation of the butter market is exceptional. We have to ponder if we aren’t currently experiencing a fundamental change in the dairy products market. Indeed, the current difference of valuation between fat and milk protein (price of the skimmed-milk powder) is a new element that must make us react and may potentially lead us to a paradigm shift. This trend, of which we have been catching a glimpse for the past three or two years, has brutally been revealed to us! The demand regarding milk fat (which has become a trend) through its various forms (cheeses, butters, creams and processed ingredients) is so important that the offer is having a hard time meeting it.

In theory, according to market laws when a product is in high demand, its price rises, its production increases and balance is restored. However, the current valuation of the butter/skimmed-milk powder pairing doesn’t enable (in spite of the fat price) the setting of an attractive price which would give a clear signal to milk producers to start anew milk collection. The particularity of our sector is the direct link between butter and pure proteins productions: one can’t go without the other. It’s the “squaring” of the circle!!!

It will certainly be necessary to think of another system regarding milk payment and to stop favouring proteins as we have been doing for 40 years!

Meanwhile, the milk farmer is therefore tempted to collect enough milk to manufacture end-customer products but not more than that. Never mind if they don’t produce ingredients that regularly burden their operating account with debt!!

Going back to the current state of butter fat, the assessment is the following:

Butter stocks are low: the weak collection of the beginning of the year hasn’t enabled them to recover. The stocks of winter butter are missing. Our customers’ rates of coverage (always hard to evaluate) seem quite low for the second part of the year. The availability announced by the butter manufacturers for the 2nd semester are restricted.

Finally, and unfortunately, the current weather conditions (cold and water deficit) are becoming seriously worrisome. The forecasts are frequently revised downwards!

The situation is a powder keg!!!!!!!!