Milk processors are working flat out to keep shelves stocked as demand for liquid milk at retail level spikes higher than at Christmas. UHT sales have also risen.
How long this lasts and whether it will compensate for the drop in sales to the café, restaurant and other food service sectors remains to be seen.
Food service accounts for 10-15% of the UK’s liquid milk sector, which in turn represents about 50% of UK milk consumption.
“The food service sector is struggling big time and it’s getting worse every day,” said Chris Gooderham, AHDB Dairy head of markets specialist.
However, while cafes and restaurants were suffering a huge fall in demand, hospitals and schools, which account for a big element of food service milk use, were still operating .
“It’s more the impact on individual processors – cashflow will be a big issue for them,” said Mr Gooderham. “It will be fairly rocky for certain processors.”
There would also would be knock-on effects for the spot market, as food service demands change and spot volumes fluctuate.
Mr Gooderham said processing kit could come under a lot of strain and any breakdowns could add to spot market pressures.
Many of the parts required are manufactured abroad and many of the fitters are based in continental Europe, so any issues with availability, travel time and access could exacerbate the situation.
There has been much recent speculation about the track of spot milk prices, which have fluctuated between 31p/litre and 25p/litre in the past couple of weeks.
“It’s difficult to tell if the downturn in spot prices is due to concerns on Covid19 or just the fact milk production has started to pick up after being flat from the turn of the year,” said Mr Gooderham.
“We would normally expect spot prices to reduce in March, as we start the run-up to the spring peak.”
Dairy market analyst Chris Walkland said the spot market trading was very thin, so prices could be misleading.
“A better one is the cream price – which at £1.25-£1.28/kg is stable on a month ago, but down on last week. At this level, it will do nothing to support milk prices, though,” said Mr Walkland, who is also concerned for the future of processors heavily reliant on the food service sector.
He said we could see another plant come out of production in the next six months or so, or even another processor failure.
GDT sees fourth fall
On a wider scale, the New Zealand-based online dairy commodity GDT auction on Tuesday (17 March) was down 3.9%, with skim milk powder taking an 8% hit. This was the fourth consecutive drop for the fortnightly sales index.
China encourages higher milk consumption
The Chinese government is promoting higher milk consumption to boost the nation’s immune status. It wants to see average daily consumption of the equivalent of 300ml of liquid milk.
Rabobank predicts coronavirus hangover for dairy markets
Global dairy product prices were rising in the final quarter of 2019, but have now stalled because of the uncertainty imposed on the market by coronavirus in addition to the slower global growth that was expected even before the virus took hold.
“Global dairy commodity prices have already priced in the uncertainty,” said Michael Harvey, RaboResearch senior dairy analyst. “But a less-than-favorable expected finish to the New Zealand production season is providing some price support.”
Rabobank expects China’s consumer buying patterns to normalise by the second half of this year, with some supply chains already showing an improvement.
However, any setback or a delayed economic recovery in China presents a major downward price risk to its forecasts, it warns.
Milk output is rising among the world’s top seven producers – the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay.
“The combination of reduced Chinese imports, significant supply chain disruptions, including extreme competition for shipping containers across the globe, and rising dairy surpluses in export regions will keep downward pressure on global markets through much of 2020,” according to Rabobank.