Sterling weakness gives shelter from tumbling dairy markets

January has seen global dairy markets continue to tumble. Whole milk powder prices at New Zealand’s Fonterra auction fell a further 9.3% month-on-month and prices of butter and skimmed milk powder (feed grade) in the Netherlands are now 7% and 22% below intervention prices.


However, the European Commission’s decision to reintroduce export refunds (Business pxx), coupled with the imminent opening of intervention schemes, is likely to help Continental prices move back to intervention levels. It is therefore troubling to note that the Intervention Milk Price Equivalent for December stood at only 19.2p/litre.


However, low milk supply and the weakness of Sterling continue to protect British markets. There are reports of cheap imported “generic” cheddar undercutting the cheaper end of the market, at prices around £2100/t, but quality British mild cheddar still commands a premium at £2500/t, still 30% above the £1900/t in early 2007.


We have seen a number of major milk processors announce farmgate price cuts recently something the majority are likely to follow in coming months. However, the weakness of Sterling should continue to protect our markets, with those selling cheddar into the UK unlikely to make significant amounts of product specifically for UK markets due to the low returns they would achieve.


The low farmgate prices many non-European countries are beginning to experience are also likely to slow global production growth, which will bring supply and demand better in balance and stabilise prices. This trend could be exacerbated if global market prices become further depressed as larger volumes of EU product are exported with the help of export refunds.


The underlying growth in global consumption is still positive, and we are now entering a new phase of price volatility, as the global supply and demand balance tips back and forth, closely followed by global prices. The weakness of Sterling will help protect British dairy farmers in the short term, but the attitude of retailers and their sourcing decisions will also have a major impact on farmgate prices.








































































Dairy commodity prices

 

December 08


November 08


December 07


AMPE (p/litre)


20.4


21.0


28.0


MCVE (p/litre)


27.19


27.04


28.84


SMP (£/t)


1,750


1,800


2,350


Butter (£/t)


1,750


1,750


2,100


Mild Cheddar (£/t)


2,750


2,750


2,850


Cream (£/t)


800


780


825

 

December 08


November 08


December 07


Dairy farmer numbers (England and Wales)


11,921


11,980


12,561

 

December 08


November 08


December 07


Deliveries to dairies (million litres)


1,044


983


1,069

 

November 08


October 08


November 07


DEFRA farmgate milk price (p/litre)


27.08


27.36


27.27



Click here for DairyCo datum league table (November) (pdf)