Dairy Round Up – Feb ’16

Markets and Production

The latest results from the Global Dairy Trade (GDT) auction show no signs of recovery in the dairy markets.  The average price index saw a further drop of 2.8%; the auction at the beginning of the month recorded a 7.4% fall.  But production in some EU countries, which were previously restricted by quota, still shows little signs of reducing.  In Ireland, output continues to increase, up by 14% in 2015 compared to 2014.

In the UK, daily deliveries are falling, but they are still above year-earlier levels.  In the first five weeks of 2016 daily deliveries fell by 1.4%; usually they start to increase as we move nearer the spring peak.  According to AHDB Dairy the average from the last three years shows a 2.7% increase over the same period.

Further afield production in New Zealand was pretty flat throughout January; down by just 0.3% compared to 2015.  This brings cumulative production in New Zealand for the season to date down by 2.2.% compared to the same period a year earlier.  Meanwhile US milk production in January was up by just 0.3% compared to year-earlier levels.  The US Department of Agriculture’s latest estimate of production in 2016 is up by 1.8 billion litres compared to 2015 to 99.2 billion litres.

Intervention

Wholesale prices could be put under further pressure as the intervention campaign for SMP is filling up very quickly.  The scheme is  open until 30^th September and can take up to 109,000 tonnes at an intervention price of €1,698 per tonne, which puts a price floor in the market.  But as at the beginning of February, nearly 30,000 tonnes had been offered already and at the current rate the scheme would be full by May.  Once the volume has been reached, the product can only be offered through a tendering process and the ‘floor’ set by the intervention price is no longer available.  In addition, Private Storage Aid for SMP has been extended until 30^th September.  This does not set a floor price but removes product temporarily whilst prices are low.

Prices

With no signs of recovery in the dairy markets the pressure on prices remains and more price cuts continue to be announced.  The biggest is for Arla direct suppliers who will receive a 3.25ppl reduction from 1^st March, this comes on the back of the recent announcement that Tesco is to switch about 180 million litres of its Tesco aligned milk from Arla to Muller.  Elsewhere, First Milk has announced a number of changes to its members’ price schedules from the 1^st April.  Amongst other changes, this will see their A volume increase from 80% to 90% of historic volumes.  Following its takeover of Dairy Crest’s liquid business, Muller has given 12 month’s notice to end the Dairy Crest Direct milk formula contract.  Suppliers will either be switched to the standard Muller contract or it is looking into developing a new contract.