Hello everyone and welcome to our latest update on the dairy industry. We hope all of our customers enjoyed a prosperous summer and everyone is rejuvenated after the holiday season! Activity has been relatively quiet regarding dairy pricing throughout the summer months with butter the only commodity to show major movement. Apart from that, cheese prices have been relatively stable which I hope is a positive for our customers who don’t have to deal with the turbulence of previous years.
The summer flush period has ended and we now look ahead to Q4. We have enjoyed one of the longest periods of stability in the dairy industry for some time and we hope the calm continues for a little longer. We appreciate the challenges a volatile market presents to our customers as many have agreed long term pricing with retail clients. The sustained period of price rises over the last few years was very difficult to comprehend but the tide has turned in recent times so hopefully this has offered our customers a secure footing. The next few months are difficult to predict due to the political uncertainty in the ongoing negotiations between the world’s second largest dairy importer the UK and EU. However, due to the high stakes, we hope sense will prevail and a favourable agreement is reached for both sides. If this occurs we should be looking at another period of stability due to healthy milk volumes and positive market conditions. In the event of the many scenarios that can happen you can rely on Ingredient Solutions to maintain consistency of supply due to the long standing relationships we have built with our suppliers. We hope we are continuing to live up to the high standard of service expected of us and wish you a successful Q4 as we look ahead to the looming festive season!
Welcome everyone to our latest market update and as we enter the peak summer months it is fair to say we have entered a period of stability in the dairy industry. Prices have been generally steady through most of 2019 and milk volumes appear to be healthy (if nothing spectacular) at the moment so this should continue over the summer. The political situation has also stabilised in the last few months due to the Brexit deadline extension to October so this is a period of rare calm. I hope all of our customers have enjoyed a successful 2019 so far and we hope to have provided you with a consistent stream of supply so far this year.
As we enter the summer flush period trading is calm and pricing is relatively static. However if we have learnt anything from the last few years it is don’t take anything for granted in the dairy industry. Buyers have been lulled into a false sense of security in the past and it would be foolish to bank on the current stalemate to last for too long. The current lull will be a concern to manufacturers but to put things into perspective the record high pricing of 2017 and 2018 was unprecedented so it isn’t a huge surprise to see a relative calm as the previous butter pricing was unsustainable for many large buyers. We are glad to have been able to offer our customers a period of stability as we realise the volatility of the recent past was very difficult to deal with at such short notice. We will keep everyone updated on any developments throughout the summer months and as always you can trust Ingredient Solutions to service your requirements no matter how difficult trading conditions are in the marketplace.
Hello everyone, I hope you are enjoying a relatively stress free build up to Christmas! The festive season is indeed upon us and as we look back over the year we can be correct in saying it has been another drama filled period in the dairy industry. After the record high pricing in 2017, the general feeling was 2018 would see a gradual reduction in pricing. However, seasoned experts were proved wrong yet again as we saw another dramatic increase in the Spring on butter especially. Thankfully we seem to have got over the worst 2018 threw at us but who knows how 2019 will play out?
As the end of the year descends upon us it is hard to believe how quickly it has all passed by yet again! We understand that 2018 was another challenging year for all of our customers who have had to deal with more turbulence on their pricing. We live in uncertain times both in the dairy sector and politically so nobody can be sure what 2019 will bring. However, we are encouraged by the developments of recent months and we will keep our customers closely updated as we see more activity. Again, we would like to thank everyone for keeping faith with us over the course of the year and we hope you are satisfied with the effort we put in.
We wish everyone a very happy Christmas and a prosperous New Year. Bring on 2019!
Greetings to you all we hope you have been enjoying the fantastic sunshine over the course of this record breaking summer! It is safe to assume most of us have been pleasantly surprised by the heatwave we have encountered and long may it continue. However to keep up the recent trend there is always scepticism when it comes to volatility in the dairy sector and the extreme lack of rain is putting pressure on farmers across the continent. This has come on the back of another huge jump in price on especially butter and mozzarella over the last few months. There are several predictions being shared by experts on what lies ahead but if we have learned anything from the past 2 years it is that predictions can look very silly indeed!
An uncertain market but with ever increasing demand
To conclude it is clear we are working in a very uncertain market and trends become even harder to predict in the light of ever increasing demand for dairy. However it must be said that it is positive that demand for natural dairy is growing and we hope this continues. It is clear though that work needs to be done to address the supply issues that are ongoing as the sharp sudden increases in price are tough for everyone to deal with. I hope all of our customers appreciate we do our very best at Ingredient Solutions to provide you with the best deal possible in a challenging environment. We hope you feel we do our best to provide you with as much information as possible to show the challenges we face. As ever we always try to think in a positive manner and we feel there has to be a point where prices reach a much more sensible level. As always we will keep you posted on any developments and we wish you all a pleasant summer.
A Happy New Year from all at Ingredient Solutions!
Here’s hoping 2018 is a more stable year of trading for farmers, processors, suppliers & customers in the dairy industry alike. The market is still just settling after the Christmas break, with many traders only back in recent weeks but everyone is cautiously hopeful for the year ahead.
Winter is upon us again and usually this means potential price volatility with the end of the milk production season. However there is general optimism that we have reached a pricing peak for dairy and we are soon set to see significant easing over the next few months. This is well needed as it has been another very tough year with prices driven to near record levels by an unprecedented shortage of butter. There is also less demand for European product due to a strong dollar which has increased Asian exports for the US so this should reduce the extreme pressure on EU stocks.
In our last market update we reported of prices easing and a period of relative stability in the dairy industry. Wishful thinking! All the usual logic that says the start of milk production should bring lower prices has gone swiftly out of the window due to an unprecedented shortage of butter. This is due to a huge demand from consumers which has led to a severe shortage of butterfat. We were hopeful that 2017 would see the period of relative stability being maintained after the huge price volatility over 2H 2016.However this has proved to be an illusion as butter prices have reached record levels and other dairy products are fast on its heels.
As we look ahead to the summer months there are signs of relative stability in the dairy industry which has calmed fears of long term turbulence. The milk production season has started strongly due to favourable weather conditions. This has significantly boosted stock levels and prices have eased from the very high levels witnessed in Q4 2016. Prices are still far above the low levels of this time last year however so buyers are hopeful the reductions will continue throughout the year. While there has been much optimism from buyers in the last few months it is unrealistic to think the prices of 2015/1H 2016 will be reached again soon.
Happy new year to everyone and let’s hope 2017 does not contain half the drama of the previous year! It is fair to say everyone was caught off guard with the level of pricing turbulence in the latter half of 2016. Such a sharp jump in prices over a short period of time is unprecedented and a clear sign of the unhealthy nature of the low milk prices in 2015. If there are any positives to be taken out of this period of volatility then it is the hope that milk prices will not be driven down again to such unsustainable levels for farmers.
Where to start? While it is a great relief to many in the industry that we have finally seen a long awaited price recovery, nobody foresaw the events we have witnessed in the last 4 months. It is fair to say that the severe lack of supply and extreme increase of prices in such a short period of time has never been witnessed before. Of course we had the 2007 crisis but even that pales in comparison with what we have just witnessed during the summer of 2016. There is a feeling that prices are heading towards the record levels we saw in 2012/13 and there is nothing much anyone can do to stop it.
In the last report we commented on how prices had seen a recovery which was mainly down to the EU intervention scheme. However the main concern now is the severe lack of milk supply in the marketplace. This has been caused by farmers being forced out of the market due to the poor returns on offer during the last two years. Also many farmers accepted incentives from their processors to cut back milk production at the start of the year. All of these factors have now combined to drive prices up at a phenomenal rate. The supply situation is so fragile major processors are struggling to keep up with regular demand, never mind supplying any new business! As we move into the winter season it is fair to say the milk supply will not recover before Spring 2017.
As we move into the summer it is time to finally announce a long waited price recovery in the dairy industry. Significant upwards movement has been witnessed in recent GDT auctions in the last few weeks with many predicting this may be the common trend over the summer months. A slow start to the production season along with increased demand from Asia has certainly influenced the market but again the main driving force behind the global market has been the actions of the EU member states.
As mentioned in our Q2 report, all of the EU agricultural ministers met in Brussels in the Spring to discuss the crisis in the dairy industry. Prices have been falling at a phenomenal rate for the last two years which has driven the milk price down putting many farmer suppliers under severe pressure. A key factor in this was the abolition of EU milk quotas in 2015. Many farmers expanded their facilities in preparation for the removal of quotas as they believed it would herald a bright new dawn with no restrictions on milk production.
As we enter into a new year it is perhaps best to start with a look back at 2015 and the conditions which have created the current supply heavy situation. There were continuous drops in price throughout 2015 yet again which has forced the milk prices across the globe to drastically reduce. There was an exception to the trend in Spring 2015 as there was an increase of dairy prices in the EU due to many of the larger processors being over quota which briefly halted production. However the European milk quotas were removed in April which has had the expected massive effect on the global market. There was a huge surge in milk production yet again as many farmers had prepared for the abolition of quotas by investing heavily to expand their facilities and capacity.
The long-awaited new era has begun in Europe as a result. However when the abolition of quotas was announced a few years ago, market observers did not expect Russia’s withdrawal from the EU market. Russia accounted for over a third of EU dairy exports before they announced a trade sanction in the summer of 2014. The whole EU market is still feeling the knock on effect of this seismic event as the current situation would not be so concerning if Russia had continued to maintain their position as the largest consumer of EU dairy products. The Middle East and China have not filled the void left by Russia so far and predictions of potential economic turmoil in China especially have further dampened expectations.
All of these factors have contributed to the situation today which is threatening the livelihood of many farmer milk suppliers in the EU. If milk prices continue to fall in the same direction, many farmers will be left with no choice but to exit as they struggle to make a living. Observers have predicted that it will now be 2H 2016 at the earliest before we start to see some sort of price recovery. There has been an increase of consumer demand in the EU but not nearly enough to have any sort of effect on the market so far. The production season was also weak in Oceania with a drop of nearly 10% in terms of milk supply but even this has still not affected the global market greatly as the EU continues to be the driving force of low commodity prices. There will need to be a slow down of production in the EU over the next six months to finally initiate a price recovery.
An example of efforts to halt milk production in the EU can be seen in the Netherlands where the top milk producer, Friesland Campina, have offered incentives for their suppliers. They have put forward a proposal where they will pay their farmers €2 per 100kg of milk supplied if they either maintain or reduce their production levels. This is effectively a 5% income bonus for their 20,000 members and highlights the desperation some dairies are feeling as they are unable to cope with the excess stock. The Dutch Dairy Producers Union president, Harm Wiegersma, expressed his alarm at the situation which forced Friesland to implement such measures. He was quoted as saying the decision to remove quotas will go down as a ‘historic mistake’. We will see if his prediction rings true!
There were further indications of tough times ahead for the dairy industry in 2016 if you were to consider the opinions of experts at the Irish Grassland Association held in Limerick in January. The subject of the conference was ‘The Ability to Overcome Volatility’. Tadhg Buckley of AIB reported that since 2007 milk price volatility over any given three-month period has increased by a mind-boggling 300%. However he also provided cause for long-term optimism as he stressed that it is still possible for farmers to get through these challenging times by having simple and stable farm systems along with strong financial awareness. The importance of strong people management skills were also stressed to help when dealing with banks and making important, timely decisions which could be critical during the coming year.
I would like to take the time to thank all of our loyal customers and suppliers for their continued support throughout 2016. We have enjoyed another successful year at Ingredient Solutions but this would not be possible without you and your loyalty in tough market conditions is very much appreciated. We are hoping to witness a recovery of commodity prices at some stage in 2016 as we believe the current situation is unhealthy and their needs to be rapid action taken to ensure we do not experience another year of extremely weak commodity prices. Relief should be granted if we see a significant reduction in European milk production but of course it is not ideal that such measures have to be taken despite the removal of the historic restrictions of milk quotas.
However we have to face reality and take any necessary measures to ensure the livelihoods of thousands of European farmers are maintained. We have monitored the market closely throughout 2015 and we ensured our customers were also fully aware of any movements. This is an especially important time to be fully aware of conditions in the dairy industry and we will remain wholly committed to providing an expert opinion in 2016 to make sure our customers get the right deal. We wish a Happy New Year to all our customers and we will look forward to working with you to achieve a successful and prosperous 2016.