Further raw milk price increases are expected over the next six months as a projected recovery in demand for ice cream and other indulgence foods boosts the milk powder market, according to Euromonitor.
Raw milk prices have recovered from the lows of 2009 and now stand above the average monthly price between 2003 and 2006, with more upward movement expected over the coming months. Francisco Redruello, a senior Euromonitor analyst, said: "Further increases over the March-October 2011 period seem likely on the back of stronger demand for milk powder."
The milk powder market has been bullish in recent months. Skimmed milk powder (SMP) prices have jumped 30 per cent since mid-December and whole milk powder (WMP) prices have also shot up fast.
One reason for this price jump is an anticipated recovery over 2011 in demand for food products that use a lot of milk powder. In the context of stagnant demand last year, Euromonitor said global retail volumes of chocolate are expected to grow 2 per cent this year. And volumes of milk dairy desserts are anticipated to increase by 1 per cent, compared to 0.4 per cent last year, while volume growth in milk formula is projected to increase to 6.2 per cent from 5.9 per cent in 2010.
Stronger supply levels for powdered milk
Another cause of the higher milk powder prices is lack of supply. SMP and WMP production declined by two per cent and 0.1 respectively per cent between January and November 2010, according to data from Eurostat and Din Consultants EU-27.
Redruello said EU manufacturers may have been discouraged from allocating production to SMP and WMP as a reaction to the sharp decline in prices registered by both commodities between March-August 2010. Dairy information portal global DairyTrade reported an almost 30 per cent decline in SMP and WMP over this period.
Now with average contract prices for powder formats at high levels, Redruello expects an increase in the milk allocation to these products.
“Stronger supply levels, which are already mounting for SMP, are likely to result in a moderate stabilisation in prices, provided that overall milk supply in key producing areas like New Zealand and EU countries does not decline,” he said.
However, the analyst said that an increase in international price levels for milk powder could have implications for fluid milk prices.
“A higher allocation of milk deliveries to powder milk in the EU area, for instance, might result in tighter supply for liquid formats over the March-October 2011 period,” he said.