23 July 2012

5 minute read

Key Indicators

Market News

There are tentative signs that supply and demand may be starting to re-balance. However, there is some uncertainty as to whether or not globally held stocks (known and unknown) will be sold before the next flush of milk begins in the Southern Hemisphere.

Much will depend on to what extent demand growth holds up in the emerging economies and to what extent demand in established markets is undermined as a result of a deepening recession in Europe.

Average dairy prices fell back by 5.9% at the latest Global Dairy Trade auction on 3 July. The decline was largely as a result of greater volumes of product on offer than had been expected.

Cheese

• According to the US Department of Agriculture, cheese prices in the US are continuing to rise on the back of weakening inventories and lower milk sup-plies for cheese making.

Butter

• Although inventories are still higher than last year, US butter prices are also starting to firm as demand for cream increases.

Powders

• In the 12 months to 31 May 2012, New Zealand ex-ports of SMP were up 5% on the previous year.

Market News

There appears to be more confidence in European dairy markets as we move through the EU milk production peak and milk supply moderates. Expectations that available supply may be slightly lower than forecast has helped to firm markets.

A weaker euro against the US dollar in the 4 weeks to 28 June could stimulate further export demand.

Prices in June have been firmer for most products - particularly butter and cream. As a result buyers, in particular industrial customers, have been returning to the market. However, there are tentative signs that the market may be quietening down again and prices may remain stagnant until September.

Butter

• Between the end of February and 1 July 2012, 104,484 tonnes of butter have been put into private storage aid (PSA). This compares to 77,402 tonnes for the same period in 2011.

Cheese

• The ongoing disparity between cheese prices and other markets means that it remains the choice of diversion. With the exception of Morazella, continental cheese prices (e.g. Gouda and Edam) are under pressure with concerns over uptake from Southern Europe.

Market News

While tentative signs of positivity in UK wholesale markets remain, the ongoing conundrum of weather and its effect on milk production going forward, has been a factor in the minds of traders.

Butter/Cream

• The soft fruit season has provided the usual seasonal uplift in the value of cream. In addition, butter values have been following those on the continent and will have been helped by recent suggestions that New Zealand is unlikely to be exporting butter to the EU, in the second half of 2012 under the reduced tariff agreement.

Powders

• Markets remain fairly tight although trade is slow going into the summer period. However, with supply being tight, prices have moved higher than in May.

Cheddar

• The divergence between product for retail and ingredients/catering continues to grow resulting in another small reduction in the value of mild Cheddar. With some evidence that production in Ireland may be easing, prices may start to stabilise as available supply becomes tighter.

• UK Daily deliveries for the two weeks ending 30/06/12 averaged 38.3 litres/day, 0.6m litres/day (-1.5%) lower than the same period last year.
• For the two weeks ending 30/06/12, GB daily deliveries averaged 32.1m litres/day 2.1% (-0.7m litres/day) from the same period in the previous year.

• The average UK farmgate price stood at 26.98ppl in May. This was a 0.85ppl (3.0%) decrease on the April average price. Annual comparisons show a 0.60ppl (2.3%) increase year on year.
• The GB average price was 27.97ppl in May, a 0.49ppl (1.7%) decrease on the previous month and an increase of 1.46ppl (5.5%) compared with May 2011.

Company News

• Several large liquid milk purchasers (Arla, Dairy Crest, First Milk and Robert Wiseman Dairies) cut their milk prices by 1.65-2.0 pence per litre (ppl) on a number of their liquid contracts from 1 August. This is in addition to price cuts announced for May (Dairy Crest) and June (Arla, Milk Link, First Milk and Robert Wiseman Dairies) making for a total price cut since May of between 3.55ppl and 4ppl.
• Members of UK co-operative Milk Link and Arla Foods amba’s Board of Representatives have both voted in favour of the proposed merger between the two co-operatives.
• Muller Dairy UK has bought a chilled desserts factory from the chilled, frozen and ambient foods manufacturer Greencore. The factory in Minsterley, Shropshire makes Cadbury chilled desserts, including Cadbury Mousse, Trifle and twin-pot products.
• Sainsbury’s has announced a new formula for it’s cost tracker model which uses a combination of actual annual costings data compiled for the group by Kite Consulting and input costs from DairyCo. The changes will result in a 0.26ppl increase in the milk price paid to farmers from 1 July 2012. The cost tracker model is reviewed every quarter.

Cow Prices

There has been a 16.4% increase in the average price of freshly calved heifers in June 2012 compared with June 2011.

Feed

Argentine Soyameal prices increased by 30.5% year-on-year to £355/tonne as supply remains tight. There has been some easing in feed wheat prices, although these have rallied in recent weeks.

Oil/Fuel

Latest figures from OPEC show that the price of oil was $93.98/barrel in June 2012, $15.06/barrel (13.8%) less than June last year.

Red diesel prices are now 2.3% lower than 12 months previously, with the average price in June 2012 1.61ppl lower than a year earlier at 67.95ppl.

• Volume sales of liquid milk increased 1.1% year-on-year, over the past year an additional 53.6 million litres of milk has been sold. Value sales have remained fairly static over the past year, influenced by the 1% reduction in average price per litre. Volume sales growth slowed in the last 12 weeks to 0.3% and declined by 1.2% in the 4 week period to 10 June 2012.
• Purchase frequency of milk has increased 1.1% over the past 12 weeks, with the average household purchasing milk 16.5 times during this time. The wider grocery market has also seen a similar trend over the past year, with purchase frequency up 1.5% year on year, and volumes per trip down, as shoppers try and manage expenditure and reduce food wastage through a ‘little and often’ approach.
• Pasteurised milk remains the largest segment within the liquid milk market recording a market share of 85.4%. UHT milk and sterilised milk have both seen volume and value declines over 52, 12 and 4 week periods.

July 2012