Excess milk supply puts pressure on purchase prices

However, purchase prices may resume growth in case of increased volumes of export of exchange-traded goods, - reports Georgiy Kukhaleishvili, an analyst at the Milk Producers Association.

The average purchase price of extra-grade milk as of April 25 was 14.12 UAH/kg excluding VAT, which is 31 kopecks less than a month ago. The price range for this grade on farms varies from 13.50 to 14.80 UAH/kg excluding VAT. The upper boundary of the price range decreased by 50 kopecks, and the lower boundary decreased by 20 kopecks over the past month.

The highest grade, on average, costs 14.12 UAH/kg excluding VAT (-31 kopecks). Prices for top-grade milk range from 13.50 to 14.80 UAH/kg excluding VAT. Compared to the monitoring results of the second half of March, the lower boundary of the price range decreased by 50 kopecks, and the upper boundary decreased by 20 kopecks.

The average price of first-grade milk was 13.42 UAH/kg excluding VAT, which is 11 kopecks less than the price in the second half of March. The minimum price on farms was 12.75 UAH/kg, and the maximum price was 14.10 UAH/kg. Over the past month, the lower boundary of the price range decreased by 25 kopecks, and the upper boundary decreased by 18 kopecks.

Accordingly, the weighted average price of the three grades was 13.89 UAH/kg excluding VAT, which is 24 kopecks less than a month ago.

Georgiy Kukhaleishvili notes that in the second half of April, there was a significant decrease in purchase prices due to the presence of surplus raw milk on the market. Annually in April-May, there is a significant increase in milk production in Ukraine due to increased lactation in cows. At the same time, consumption of dairy products in the domestic market does not increase during the Lent period. In 2024, a decrease in consumption of dairy products to 3.2 million tons is forecasted, which is 9% less compared to the pre-war year of 2021. Usually, during this period, dairy processing enterprises reduce purchase prices and increase production volumes of butter, dry milk, and dairy preserves, and fill warehouses with these products.

Probably, processing enterprises may insist on further reduction of raw milk prices to make it profitable to stock up finished products in warehouses. Due to the decrease in purchase prices for raw milk in the first half of April, the profitability of production of exchange-traded goods, such as cheeses, butter, and casein, improved. It is likely that by the end of July, raw milk production will start to decline, and the growth of purchase prices will resume. Stabilization of raw milk prices may contribute to an increase in volumes of export of exchange-traded goods, as demand for dairy products in the world gradually begins to recover.

Despite the fact that China imports fewer exchange-traded goods than in previous years, there is a recovery in consumer demand in the markets of North Asian countries, the Middle East, and North Africa. If there is no increase in the production of dairy products in Europe in the future, and prices remain stable, there may be prospects for increasing exports of exchange-traded goods from Ukraine. In case of an increase in the supply of dairy products to foreign markets, raw milk prices will stabilize, and further growth will occur.

Ukrainian Milk Producers Association