18 February 2022 - As already documented, the pandemic, and the resulting supply chain crisis have impacted raw material and ingredient prices across the animal nutrition and health industries. One chain of products that has endured unprecedented price rises in the last quarter of 2021 and into the new year as a result is milk and the various derivatives in which it is sold, be it for human or animal consumption.
Feed-grade milk powder and whey have applications as both feed and food ingredients. Skimmed milk powder is a by-product of milk production, in which the majority of the fat and water has been removed but the lactose, most of the milk proteins and minerals remains, making it ideal for animal feed. Whey is a liquid by-product from cheese making, which can also be dried into a powder form. As with milk powder, it remains high in lactose and protein and is often added to animal feed in liquid or powder form.
Feedinfo collects and shares weekly prices for feed-grade skimmed milk and whey powder for four of Europe’s largest producing nations: Germany, the Netherlands, France and Poland. The data is supplied by one of the largest agricultural market information providers in Europe, Germany-based AMI.
Since the start of October (week 40), Feedinfo has seen skim milk powder prices in those four European nations rise on average 35% by week 7 of this year, to previously unseen highs beyond 3,600 euro/tonne. Likewise, feed-grade whey prices have climbed approximately 35% in the same period, exceeding 1,000 euro/tonnes for the first time.
In a year prices for feed-grade milk powder and whey in these four key producers have climbed over 1,000 euro/tonnes and 400 euro/tonne respectively. But, these price rises aren’t restricted to Europe.
There is a similar trend in New Zealand, where global dairy giant Fonterra Co-op Diary Group calculates the Farmgate Milk Price range paid by all New Zealand dairy buyers. On 25 January the co-operative set a new record forecast for marketing year 2021-22, of NZ $8.90 - $9.50 per kgMS (kilo of milk solids), surpassing any annual price estimates since the co-ops’ conception in 2001. Much as is the case in Europe, price rises in the last year have been unprecedented; with the final average Farmgate Milk Price for 2021 finishing at NZ $7.54, this year could see prices leap by as much as 20% year-on-year.
Factors Behind High Prices
To get a better understanding of the drivers of this historic rise, Feedinfo reached out to AMI and Fonterra to shed light on the factors behind this trend. Andreas Gorn, Head Dairy Analyst at AMI, told Feedinfo that the price rises in October began as “strong demand [led to] scarcities in the supply”, which in turn began to dictate the prices throughout Europe.
In Germany, France and the Netherlands in particular, “dampened production throughout 2020 and early 2021 led, initially, to declining and then to consistently very low inventories,” Gorn told us.
Due to the pandemic-induced lockdowns of 2020, demand for milk constricted in response to the prolonged shut-down of most hospitality industries (HORECA). The lack of demand and ongoing demand uncertainty led to less milk being produced than was forecast pre-pandemic.
These factors meant prices built slowly across the year, until Autumn when the “supply chain situation came to a head,” causing a relative price explosion.
“On the one hand, this was due to the decline in delivery volumes. On the other, as a result of the extremely high raw material prices (primarily animal feed), production was limited to the volumes required to service existing contracts,” Gorn went on to say.
A similar pattern has been witnessed in the South Hemisphere by Fonterra, where the COVID-19 pandemic has proved a key catalyst for rising milk prices. “The challenges facing the global supply chain are well documented, caused by a range of factors, including port closures, container shortages and travel restrictions as a result of the pandemic,” a Fonterra spokesperson told Feedinfo.
What Can We Expect in 2022?
Despite rising prices, demand for milk products globally has improved and remains strong.
“Despite the challenges, we actually had a record shipment year in FY21, with volumes increasing by 4%. This volume increase speaks for the strong demand for dairy, but also the strength of our supply chain, which stands out as a differentiator with our customers, especially at a time of extensive supply chain challenges,” Fonterra confirmed.
Unlike in Europe and the US, cattle in New Zealand don’t have the same reliance on raw materials as they do in other parts of the world. Due to its warm and wet climate, cattle in New Zealand are primarily grass/pasture fed, so the impacts of rising feed and other raw material prices have not been felt as harshly as they have in the rest of the world.
When asked what was to be expected from the milk industry in 2022, Fonterra told us that globally demand is expected to vary. “In comparison to supply, overall, global milk supply growth is forecast to track below average levels, with European milk production growth down on last year and US milk growth slowing due to high feed costs. In New Zealand, volumes are down compared to last season due to challenging growing conditions across the country.”
However, the cooperative wasn’t willing to commit to saying whether or not prices could be expected to plateau, “many things that can change over the course of a year, but the rules of supply and demand apply.”
When asked about the future of milk prices in 2022, Mr Gorn of AMI simply replied, “there is no relief in sight.”
Feedinfo posts up-to-date skim milk powder and whey prices for Germany, France, the Netherlands and Poland weekly.
