Dairy Market Update Q4 2017

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.

Despite the signs of long term optimism there is no doubt that Q3 was another extremely tough time period for dairy buyers. In the last market update we reported that butter was approaching the €6000/ton mark. The price actually ended up going well past this figure as the €7000/ton mark was breached in Q3. This blew the previous record price out of the water and it was unfathomable at the start of the year that we would reach these heights. It proves yet again nothing is impossible in today’s volatile dairy climate.

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Cheese prices also continued to rise over Q3. Thankfully there was relative stability on Mozzarella prices which made a nice change. However Cheddar came under pressure due to shortages of stock which led to big increases on White and Red Mild of around €300-400/ton. Mature Cheddar also continued its familiar pattern of being extremely scarce which also led to increases. Even Gouda and Edam saw huge increases of around €500-600/ton despite their extremely low prices after the Russian trade ban on EU dairy products. This was due to increased demand as buyers sought out substitute products that could offer cost savings in light of the savage volatility.

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Despite the further volatility witnessed over Q3 there are signs of optimism. We do have to err on the side of caution as positive predictions were also made at the start of this year before we had the unexpected butter crisis. There is less pressure on EU stocks due to a strong milk production season in most areas and a slight reduction of demand. Other markets such as the US have become much more competitive due to currency
fluctuations so this has reduced demand for EU product. Many feel prices have reached their ceiling and butter has at last seen a reduction of €500-600/ton in recent weeks.

We understand 2017 has been a very tough year for our customers having to deal with several large price increases. We appreciate your patience and understanding of our reasoning and we hope you feel we have fairly reflected the market. Like in 2016 it is fair to say nobody foresaw the level of volatility coming our way as it initially looked like prices would ease throughout the year. The level of butter prices reached an alarming
level and shows the uncertainty in the dairy sector at present with demand higher than ever. Milk supplies still stand on fragile ground after the difficulties farmers experienced with ridiculously low milk prices in 2014/15.

2017-11-24 10_54_31-Dairy Market Update Q4-2017.pdf - Adobe Reader However, as always we like to remain optimistic at Ingredient Solutions and we hope 2018 will be a much more positive year for our customers. Prices are so high at the moment that the logical assumption to make is that they can only go down. It will not happen overnight but if we can at least see some
gradual movement that provides some stability it will at least provide a solid platform to build on. We can assure all of our customers that we are constantly talking to our suppliers to gather information on the market to try and get the best deal possible for you.

Thank you again for your continued support and we wish you the best of luck ahead of the festive season in Q4. You can rely on us to meet any demand over this extremely busy period and we will hopefully be in touch very soon with positive news on the pricing front.

Yours Sincerely,

Ian Galletly

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