Milk market update

First the good news: the market is more positive now than at any time since early summer. EU butter and SMP markets started to turn positive in early August after eight weeks of steady decline, with prices down to a low of €3700/t for butter. Now there have been three consecutive weeks of increases with the price nearing €4000/t, which is a decent improvement. It’s obviously great news, but buyers will become increasingly resistant at that level. But they do not have milk volumes on their side to enable them to stand back from the market too long: UK volumes are currently tracking around 0.75% on last year, and Germany – the EU’s biggest producer – has been tracking well below last year’s levels since the middle of May. France, the second biggest, is also below last year. On an international front the dairy analytical organisation IFCN is also reporting that global volumes have fallen below a yearon-year growth rate of 1% - the first time it has done so since July 2019. After eight weeks of steady declines since April the GDT has also turned positive, albeit not by much with the latest auction up by just 0.3%. But up is, nonetheless, up! Commodity prices on the auction convert to around 30ppl, with the (still cautious) outlook for the New Zealand season being around 28p. Now to the not so good news. Rising processor costs is starting to erode milk prices, with Arla the first to state that its September price has been undermined by “inflation across our supply chain especially on fuel, energy and packaging which has been created by the positive global economy recovery following Covid-19”. That said, its price has been unsustainably higher than its rivals for months so the 0.9p correction (down to 31p) is not unexpected. Many other companies have held their prices for September, though. So, what are the prospects going forward? Well Arla also states that the prospects “after the September decrease are stable”, and it is hard to disagree with it, especially given the current positive market moves. If it wasn’t for them, I’d have been concerned for price decreases. As it is, I can see stable farmgate prices, but there isn’t enough in the market just yet to make me think there will be increases. Cream isn’t strong enough yet, and neither the real market, nor the futures, or the GDT, are pointing to prices in the 30p range, where they need to be to cover most farmers’ costs. The September to October period traditionally isn’t a great time for milk price increases either - history shows that there aren’t many increases in this period. That said, milk volumes do focus buyers minds and we are now entering the trough period of the year. It’s as good a time as any for sellers to push for increases, especially this year with milk already very tight.

Chris Walkland

Dairy Market Analyst

The Walkland Partnership

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Working in collaboration with Chris Walkland, a specialist Dairy Market Analyst, our dairy and feeds market update looks at the latest pricing trends and offers analysis on how these have been influenced.

Prepared by Chris Walkland and Wynnstay Trading Department

MARKETS UPDATE

February 2021

Sentiment positive, but milk prices still slip back

Commodity prices in the EU and UK have responded to the positive sentiment and are up across the board over the last four weeks. Alas cream prices have not increased enough to take away the risk of price cuts from some middle ground liquid players, and two have cut their farmgate prices (Payne’s and Freshways) for February or March. Cream needs to get towards £1.50/kg to ensure stability in this sector, but it’s only £1.35/kg. Elsewhere, though, there is stability with cheese prices very strong, and actually gettng stronger. The MCVE value is over 30p after transport but before a processor margin, and it hasn’t been there since October 2018. I don’t expect any reductions in this sector, therefore, but nor do I expect increases either. Overall market sentiment is strong on the back of a buoyant GDT which is being fuelled by Chinese imports. But there’s also decent demand elsewhere, and reasonable milk volumes. Only the UK and EU fl ush are on the horizon that could put the dampers on this, depending on milk fl ows. GB/UK milk volumes currently fl at

UK milk volumes in the fi rst three weeks of 2021 are tracking below late 2020 volumes, and are within 1% of previous year amounts. GB milk volumes are below last year, meaning Northern Ireland volumes are making up the diff erence. This is a generally positive situation for the market situation. 0.5% 1

MILK MARKET UPDATE

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