29 March 2002

Forward contracts put price pressure on cheese sector

By Robert Harris

REPORTS that a big multiple has bought several months worth of mild Cheddar on a forward contract for just £1750/t could put further pressure on cheese prices this spring.

Other supermarkets are due to sign contracts shortly, and if they achieve a similar result that could cut the average price of mild Cheddar to £1800/t, says independent consultant Michael Bessey.

That equates to another 0.5p/litre off the price of milk destined for the product and rounds off a 5p/litre fall since September. The effect is being felt in mature Cheddar markets, too.

With a 30,000t surplus overhanging the market, and no sign of a slowdown in cheese-making during January, Cheddar prices could struggle to recover.

Cheese accounted for 26% of UK milk output during the month, a tenth more than in January 2001. This was mainly at the expense of butter/skim milk powder, which usually accounts for about 10% of raw milk.

"But it will be interesting to see if the trend continues now that skim milk powder intervention has opened," says Mr Bessey.

Intervention is offering some support to SMP/butter prices. But the market failed to react to Brussels recent k200/t (66%) increase in export subsidy after the US countered by increasing its own subsidy to undercut EU prices, and butter/SMP prices remain the equivalent of about 3p/litre below last autumns levels.

However, the US has now hit the WTO export limit and is out of the market until July, and Australia and New Zealand are coming to the end of their season. So buyers could switch to EU product.

"In the short term, exporting more will simply mean less is intervened, which is fairly price neutral. But, in the second half of the year, most pundits think it unlikely there will be a surplus, which looks a bit more promising, though it is the only commodity that one can say that about."

Although most dairies and co-ops have made some price adjustments since the New Year, some more downward revisions are in the pipeline for April, warns Mr Bessey.

&#8226 Our latest milk price table (for February deliveries) reflects cuts made by several milk buyers. United Milk reduced the ex-farm price by 0.6p/litre from the fixed protein element, while Lancs Dairies deducted 0.095p/litre from its base price. Wyke Farms paid its suppliers 1.5p/litre less during the month, and Glanbia adjusted butterfat and protein payments, making an overall reduction of 1.57p/litre. &#42