Dairy Market Update Q1 2015

As we move into a New Year filled with uncertainty over pricing I think it is best to start this report with a reflection of last year’s dramatic change of landscape in the dairy industry. This time last year milk prices were at record levels due to the market still being short of stock supply after several terrible production seasons. China’s activity in the market was still at unprecedented levels and only showed signs of rising even more. Also Russia was still a major player in the market; they take over 300,000 metric ton of hard cheese from European production and a high volume of butter.

Due to a number of factors the stock situation has dramatically changed a year on and the outlook is worrying for farmers across the globe as milk prices are falling. Very strong production seasons in both hemispheres had already greatly increased the stock side of supply. China’s level of buying also failed to keep pace. Then when Russia announced a trade ban on the EU and US stocks increased significantly again which has further thrown the milk prices into increasing turmoil. With milk prices dropping so rapidly there is a very likely possibility that supply will be reined in this year with some farmers forced to exit the market.

To highlight the current volatility on global milk prices the Irish Dairy Board have predicted the Irish price will probably fall between 24c-26c by the end of 2015. To put this prediction into context you have to cast your mind back to September 2013 when Glanbia announced a record Irish milk price of 39c/l. In the space of less than two years the milk price is expected to fall by at least 13c/l. This highlights that many farmers could come under severe pressure despite the removal of EU milk quotas this year. Irish dairy farmers’ income is expected to halve next year with profit margins reduced to as little as 2c/l.

The IDB’s Purchase Price Index has fallen by 26% from 133 to 99.5 since the start of 2014. It is at its lowest level since August 2012. Looking at these figures it is easy to see why there has been such a drastic slash of the milk price.

At present the market has stabilised for the short term with Gouda and Edam moving up from a low of €2150 to €2300 and butterfat and mozzarella expected to move up in February. This could be short term until the new milk starts to flow in March and we could see prices weaken again. A sustainable recovery in milk and dairy prices depends heavily on when China’s imports gather momentum again and on Russia lifting its ban on European imports but it will be Q3 2015 at the earliest before that has any effect on the market, if it happens.

DAIRY COMMIDITIES PRICE INDEX 2012 – 2014

GRAPH 1Looking ahead I am personally optimistic that the market will experience less volatility as the year progresses. From our own point of view cheese prices were at unsustainable high levels in 2013. It was getting to the point for example where many restaurants were trying to substitute cheese with cheaper alternatives. It is positive to see dairy prices return to a near familiar level to assist our customers. We do however empathise with farmers who are coming under increased pressure and it is very worrying to see that a litre of milk is now cheaper than a litre of bottled water in some UK supermarkets.

Despite the uncertain economic climate we have to operate in you can be certain that we at Ingredient Solutions will do all we can to maintain and enhance our quality and service standards. In the past twelve months we have invested close on €I million in our Boherbue operation to ensure we can meet your needs in terms of availability of high quality cheese ingredients.

I would like to wish all of our customers a Happy New Year and to once again thank you all for your loyalty over the last year. Here is to another prosperous year and I hope 2015 is a good one for all.

Yours

Ian Galletly

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