Supermarkets domination of liquid milk

By FWi staff

THERE is likely to be little change on the liquid milk market, which accounts for about half of UK supplies, in 1999.

About two-thirds of the market is now in supermarkets hands. With milk one of the known-value items – a consumer pricing benchmark – retailers are unlikely to raise prices.

Most of the rest of UK milk – about 40% of the total – goes for commodity products like butter/skimmed milk powder and cheese.

The former remains a gloomy picture, due to an oversupplied world market and a dramatic drop in demand following the economic crises in Asia, Latin America, and Russia. Although this may not have a direct effect on the UK, there is more product swilling about as a result.

Bulk butter prices have been bumping around the bottom of the market for much of the year. It is currently worth about £2200-2280/t, almost £200/t below last years pre-Christmas levels.

Prices are likely to ease further over the next four months, unless Sterling weakens sharply. Extra production in the new year to mop up excess milk supplies could overhang the market.

Prices only have to drop about 5% in the UK to trigger intervention, which could, for the first time for several years, put a floor in the market – but at a level not seen for several years.

Skimmed milk powder prices have been on the floor since the summer, and there is no signs of them taking off. Not only has world demand plummeted, but the animal feed market, which uses about 50% of tonnage, has collapsed in the EU. Prices are at or near the £1400/t intervention price.

Cheese looks a brighter prospect. Mild cheese prices have improved by about £150/t in the past few months, to £2200-2450/t. Relatively expensive and scarce raw milk meant makers were unable to manufacture as much as usual. Prices are likely to remain firm at least until the spring.

Overall, none of the product markets are likely to set the world alight in 1999. The main hope is a sharp drop in Sterling, though quite how currency markets will react to the euro remains open to question.

Milk prices, it seems, may only edge up at best.