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European dairy markets weaken on closure of key markets

Wednesday, 1 April 2020

By Felicity Rusk

As more and more markets close around the world in an attempt to contain the spread of coronavirus, the lack of demand and uncertainties around future trade have weakened dairy markets.

European futures markets have been reacting as new information about the virus emerges. Settled prices for butter and skim milk powder (SMP) on nearby contracts* have been dropping steadily since January. Since the end of January, nearby European butter futures have fallen by 6%, while nearby SMP futures have dropped back by 13%.

 

These trends have been mirrored to some extent in wholesale markets.

 

As markets become more restricted, due to both difficulties in shipping and isolation restrictions put in place in the larger European countries, prices started to fall. This has impacted most key dairy products, although cheese prices, on average, have remained relatively stable.

There was as short-lived rise in butter prices in early March brought about by a significant increase in demand for packaged butter in the larger Western European countries. However, since the beginning of the year, butter prices have dropped 5% to their lowest level since August 2016.

SMP markets have fared worst due to their reliance on export markets. Since the start of the year, prices have declined by €270/tonne (-11%). Meanwhile, WMP prices, which is used primarily within the domestic market, has seen prices fall by 5% over the same period.

As an increasing number of EU countries imposed restrictions on movements, the drop off in prices appeared to have accelerated.

Visit EU wholesale price for a weekly update on price trends.

*When looking at several futures contracts, the contract with the closest settlement date is called the ‘nearby futures contract’.  In March, these would have been contracts with an end of the month settlement date.

Felicity Rusk

Analyst - Dairy & Livestock

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