The current situation on the Ukrainian dairy market deviates from the established seasonal patterns that have long determined the industry’s price dynamics. If earlier the spring increase in milk supply was accompanied by a decrease in the price of raw milk, and in the summer, its increase in price against the background of a decrease in production volumes, then over the past six months the opposite trend has been observed: a decrease in prices in the off-season and their strengthening already in mid-spring.

From an economic point of view, such dynamics would seem justified in the presence of a shortage of raw milk or a significant increase in the world price of dairy products. However, none of these factors currently has a decisive influence. Presumably, some processors consciously support purchase prices, trying to stabilise the financial situation of their suppliers – milk producers, who are on the verge of break-even. At the same time, such a policy creates risks for the processing enterprises themselves, since a significant share of raw milk is directed to the production of products with low margins, in particular butter, the production of which at current prices is again becoming unprofitable.

Despite the difficulties producers face, statistical data do not confirm the expected reduction in supply. The number of cows in agricultural enterprises has even increased, as has the volume of milk production by these producers. This indicates the sector’s relative stability in the short term.

Forecasts of a possible decrease in production in the summer look debatable and are unlikely to have a critical impact on the market balance.

At the same time, structural changes are occurring in the household segment, with a rapid decline in milk production. It creates additional demand for industrially produced products in the domestic market and forces processors to adapt production strategies to the changing consumer base.

The growth in processing volumes against the backdrop of a general reduction in milk production across all categories of producers indicates a sufficient raw milk base, as well as potential surpluses that can be directed to export. The external environment is currently generally favourable, particularly in the dairy protein segment, but falling butter prices are significantly limiting the profitability of the industry as a whole. As a result, some exporters are forced to operate under negative margins.

The market outlook will largely depend on global trends. In the event of a reduction in milk production by key global players, price stabilisation is expected at the end of the year, creating the prerequisites for a return to a more traditional pricing model in the domestic market as well.

At the same time, domestic demand remains constrained by macroeconomic factors. Despite nominal income growth, inflationary pressures are eroding the real purchasing power of the population. This fact, together with general economic uncertainty and limited external financial support, forms a restrained outlook for the industry in the short and medium term.