Stabilization of Milk Raw Material Prices in Ukraine Amid Market Dynamics
Source: The DairyNews
As of January 22, 2024, the average prices for three types of milk raw material in Ukraine remained unchanged compared to January 1.
The stabilization of procurement prices and the balance between milk raw material supply and demand in the domestic market were influenced by a certain calmness during the post-holiday period, currency devaluation, and the availability of surplus raw material volumes in the country due to force majeure circumstances at the Kanev Cheese Plant, according to analyst Georgiy Kukhaleishvili fr om the Milk Producers Association.
The average procurement price for extra-class milk, as of January 22, was 14.70 UAH/kg excluding VAT, which is 9 kopecks higher than the price as of December 17, 2023. The price range for this type varies fr om 14.00 to 15.20 UAH/kg excluding VAT at farms. The lower lim it of the price range remained unchanged, while the upper lim it increased by 20 kopecks in the last month.
The highest-class milk averages 14.70 UAH/kg excluding VAT. Over the past month, the price for this type increased by 9 kopecks. Prices for top-grade milk range fr om 14.00 to 15.20 UAH/kg excluding VAT. The lower lim it of the price range remained unchanged, while the upper limit increased by 20 kopecks compared to the second half of December.
The average price for first-class milk was 13.52 UAH/kg excluding VAT, increasing by 3 kopecks compared to the monitoring results on December 17. The minimum price at farms was 13.00 UAH/kg, which is 8 kopecks higher than the previous month. The maximum price for the first grade remained at 14.28 UAH/kg and did not change over the last month.
Consequently, the weighted average price for the three types amounted to 14.32 UAH/kg excluding VAT, increasing by 7 kopecks compared to December 17 but remaining unchanged compared to January 1.
Georgiy Kukhaleishvili noted that in January 2023, the procurement price level in Ukraine was stable as the market maintained a balance between milk raw material supply and demand throughout the month. Seasonal decreased demand for milk from processing enterprises after the New Year holidays contributed to price stabilization. Prices for milk remained unchanged in both the primary and secondary markets since the beginning of January.
One of the factors stabilizing prices was the appearance of an additional 350 tons of milk raw material on the market due to a major fire at the Kanev Cheese Plant in early January. The affected enterprise transferred the unused raw material volumes to other participants in the milk market. Therefore, there was no rush for raw materials in Ukraine in January, and milk processing enterprises predominantly operated with storage, accumulating reserves for the future.
Currency devaluation affects prices. Typically, the devaluation of the national currency against the dollar's exchange rate contributes to inflation and an increase in prices for food products. In turn, devaluation can lead to an increase in the cost of dairy products and a reduction in consumer demand. The decrease in demand for milk on the domestic market may curb the rise in raw material prices. Since prices for exchange-traded goods have been rising during the last GDT trading sessions, and there is a decrease in the supply of milk raw material worldwide, export markets are likely to show increased interest in Ukrainian dairy products. It is likely that, under the conditions of currency devaluation, the demand for milk raw material will mainly be observed in export-oriented enterprises producing butter, cheese, powdered milk, and other exchange-traded goods.
Most likely, milk raw material prices in Ukraine will remain unchanged until the end of January. However, if there are surpluses of milk raw material on the market due to issues at the Kanev Cheese Plant, and the volume of dairy products in storage significantly increases, processing enterprises may raise the question of revising procurement prices downward.
It is important to understand that the possible reduction in procurement prices for raw materials puts additional pressure on farmers in conditions of wartime. Since the full-scale invasion of Russia, milk production in Ukraine has become more expensive. In January, costs for dairy farms increased due to electricity expenses. Open data from the National Commission for State Regulation of Energy and Public Utilities allow us to conclude that average tariffs for enterprises for the distribution of electric energy of the 1st and 2nd voltage classes for January-March 2024 increased by 34% and 30%, respectively, compared to the same period last year, as well as by 8% and 7% compared to the fourth quarter of 2023.
The average procurement price for extra-class milk, as of January 22, was 14.70 UAH/kg excluding VAT, which is 9 kopecks higher than the price as of December 17, 2023. The price range for this type varies fr om 14.00 to 15.20 UAH/kg excluding VAT at farms. The lower lim it of the price range remained unchanged, while the upper lim it increased by 20 kopecks in the last month.
The highest-class milk averages 14.70 UAH/kg excluding VAT. Over the past month, the price for this type increased by 9 kopecks. Prices for top-grade milk range fr om 14.00 to 15.20 UAH/kg excluding VAT. The lower lim it of the price range remained unchanged, while the upper limit increased by 20 kopecks compared to the second half of December.
The average price for first-class milk was 13.52 UAH/kg excluding VAT, increasing by 3 kopecks compared to the monitoring results on December 17. The minimum price at farms was 13.00 UAH/kg, which is 8 kopecks higher than the previous month. The maximum price for the first grade remained at 14.28 UAH/kg and did not change over the last month.
Consequently, the weighted average price for the three types amounted to 14.32 UAH/kg excluding VAT, increasing by 7 kopecks compared to December 17 but remaining unchanged compared to January 1.
Georgiy Kukhaleishvili noted that in January 2023, the procurement price level in Ukraine was stable as the market maintained a balance between milk raw material supply and demand throughout the month. Seasonal decreased demand for milk from processing enterprises after the New Year holidays contributed to price stabilization. Prices for milk remained unchanged in both the primary and secondary markets since the beginning of January.
One of the factors stabilizing prices was the appearance of an additional 350 tons of milk raw material on the market due to a major fire at the Kanev Cheese Plant in early January. The affected enterprise transferred the unused raw material volumes to other participants in the milk market. Therefore, there was no rush for raw materials in Ukraine in January, and milk processing enterprises predominantly operated with storage, accumulating reserves for the future.
Currency devaluation affects prices. Typically, the devaluation of the national currency against the dollar's exchange rate contributes to inflation and an increase in prices for food products. In turn, devaluation can lead to an increase in the cost of dairy products and a reduction in consumer demand. The decrease in demand for milk on the domestic market may curb the rise in raw material prices. Since prices for exchange-traded goods have been rising during the last GDT trading sessions, and there is a decrease in the supply of milk raw material worldwide, export markets are likely to show increased interest in Ukrainian dairy products. It is likely that, under the conditions of currency devaluation, the demand for milk raw material will mainly be observed in export-oriented enterprises producing butter, cheese, powdered milk, and other exchange-traded goods.
Most likely, milk raw material prices in Ukraine will remain unchanged until the end of January. However, if there are surpluses of milk raw material on the market due to issues at the Kanev Cheese Plant, and the volume of dairy products in storage significantly increases, processing enterprises may raise the question of revising procurement prices downward.
It is important to understand that the possible reduction in procurement prices for raw materials puts additional pressure on farmers in conditions of wartime. Since the full-scale invasion of Russia, milk production in Ukraine has become more expensive. In January, costs for dairy farms increased due to electricity expenses. Open data from the National Commission for State Regulation of Energy and Public Utilities allow us to conclude that average tariffs for enterprises for the distribution of electric energy of the 1st and 2nd voltage classes for January-March 2024 increased by 34% and 30%, respectively, compared to the same period last year, as well as by 8% and 7% compared to the fourth quarter of 2023.
Key News of the Week
