Market Report Q2 2013

Market Report May 2013

The World is eating more cheese –it’s a no-brainer

World cheese sales for the 52 weeks ending 30 September 2012, the latest full year’s data from Kantar Worldpanel Cheese show expenditure up by 6.7% to £2.7billion. The growth is made up in part by price increase, with the average price of a kilo of cheese increasing by 5.1%. However volume sales have increased too, this time by 1.5% year on year to 412,805 tonnes.

Food scares such as the horse meat scandal and the economic climate, have led consumers to rediscover the virtues of eating cheese. But cheese is also making a strong showing for it’s healthy properties. Vitamin A for eyesight, vitamin B12 for red blood cells, calcium for strong bones and teeth and magnesium for muscle function are all well documented benefits. Now new research suggests that dairy food could be essential for a healthy brain.

The study, by U.S. and Australian researchers, involving 1,000 adults, found those who regularly have dairy products such as milk, cheese and yoghurt score better on tests of mental ability than people who never, or rarely, consume dairy. The research, published in the International Dairy Journal, didn’t conclusively establish the link between dairy foods and brain power. But following close on the heels of another U.S. study involving 104 pensioners, where scientists found older people with higher levels of beneficial fats in their blood had less brain shrinkage typical of Alzheimer’s disease highlights a hopeful line of research.

Food in the Forefront

Food has, as ever, been much the news, this time it is about a seemingly endless variety of food products containing horsemeat when they are meant to be beef. And it’s not just Horse; DNA from other animals has appeared in supposedly beef, pork and chicken products. These events highlight, once again, the complexity and interconnectivity of world food chains revealing starkly how food from one point in the food chain spills out to many products sold in many countries.

At Ingredient Solutions all our cheese is made from cow or goat milk and is sourced only from countries that operate to world leading animal welfare standards. Our supplying counties all have Food Industry Welfare Strategies designed to give consumers confidence that animals used in the supply chain are protected by the adoption of practical, effective and humane animal welfare standards. The EU animal health and welfare legislation is rigorously applied and is enhanced by local initiatives.

In the UK, for example, over 95% of British dairy farmers are members of the Red Tractor Farm Assurance scheme. Participating farms are required to comply with a stringent set of standards covering food safety, animal welfare, traceability and environmental protection and are assessed and certified by independent Certification Bodies accredited to EN45011, an internationally recognised standard for product certification.

Milk supply contraction continues globally as demand increases moving into Q2

It is yet again a potentially tough time for buyers in the ever volatile global dairy market as an unexpected drought occurred in the Oceania region which has severely affected milk production in the major dairy export regions of New Zealand and Australia. As New Zealand alone accounts for over a third of the total world’s dairy exports, we are forced to look once again at a market that looks like it will probably sustain its high prices throughout Q2 and Q3 in the region and affecting others globally. The upward phase of global dairy prices entered its ninth month in March. Prices surged to their highest level since June 2011 in Fonterra’s latest GDT auction and this is a typical indicator of where the market is headed at the moment. Their latest GDT auction saw a substantial 10.4% increase from their previous one and this means their prices have increased nearly 20% so far this year. As Fonterra is the largest co-operative dairy company in the world with nearly total control over all of New Zealand’s global exports this can be viewed as a very strong indicator of how volatile the situation has become in this extremely strong dairy region which has proved itself not immune, after recording around 6% export growth last year in spite of the struggles of the rest of the world, from the global hardship farmers have experienced worldwide due to the freakish out of season weather we are experiencing at the moment.

One potential bright spot for the region and the global market as a whole is the strong dairy importing seen from China. Even though their strong dairy purchasing trends had eased somewhat throughout last year we saw again a recent resurgence in their purchases due to consumption still rising rapidly and a bad winter that pushed local milk production considerably lower than last year’s levels. If you also consider the sheer scale of the population and their new found taste for dairy products it is very important for exporters, such as New Zealand which exports the most to them, to see China continue to purchase strongly. The statistics speak for themselves as their overall dairy imports rose by a staggering 30% in Q4 as a whole and 68% in the very first month of 2013. It is clearly evident that it is absolutely essential for China to keep increasing their buying to sustain the high demand for dairy products as there is no impending sign of a drastic upward turn in the economic situation of the traditional buying countries of the EU and the US which would increase consumption rapidly. The EU and US account for a third of all global dairy sales between them and they are clearly suffering as consumers in these countries are forced to tighten their spending as record high unemployment levels and tax increases continue. With the euro currency also under constant threat due to economies collapsing such as Cyprus it is very hard to predict what way the economy will turn. In established mature dairy markets such as these, economic problems deny the chance for consumption trends to grow significantly and can cause stagnation or decline. EU dairy consumption actually contracted in Q4 of last year as liquid milk sales fell 0.2% in the 3 months leading up to December while cheese sales also fell by a considerable 1% in this period of time. Sales of infant formula and yoghurt have been falling substantially for some time and this didn’t change either in Q4 as they continued to fall at low single digit rates. It just proves that consumers are a lot more conservative with their spending as the money simply isn’t there anymore after the economic crash so the West is now looking towards the East to keep on expanding their dairy consumption trends and help sustain the market.

 

Despite the gloom and doom associated with the dairy market as a whole worldwide I am glad to say there is reason for optimism with cheese sales and prices a little bit closer to home. As seen in the first paragraph cheese sales have increased in the past year in the UK. This provides plenty of reason for optimism for companies buying and selling cheese in the UK or exporting to UK as it shows that despite a struggling domestic economy the market is still in a very healthy state as Briton’s love of cheese continues as consumption continues to increase, in contrast to the rest of Europe, and there is also plenty of scope for more improvement as the recent horsemeat scandal has also boosted sales. There was a slight reason for negativity however as the sales volume of the UK’s favourite cheese, cheddar, has seen a decrease of 0.5%. An enlightening fact to take note of though is that volume sales of mature cheddar have increased by a very considerable 10% and sales of mature cheddar accounts for over half of all cheddar sales with 51%. This clearly shows that while sales of all other age types of cheddar have fallen slightly the popularity of mature is continuing to boom and its dominance of cheddar sales continues to show extremely healthy increases as consumer tastes gear towards it.  We are also seeing encouraging signs on an international scale price wise as cheddar is at its lowest price worldwide since last June but of course as we saw last year this can quickly change as we saw a price increase from $1.5193 in March last year to $2.0757 in October after the horrendous summer but we would be highly unlucky to see the market explode like that again and I am hoping for the market to level out somewhat this summer.

 

Looking ahead all we can do is keep our fingers crossed and hope we are due a much better Northern Hemisphere production season this summer which wouldn’t be hard after the catastrophe of last year. This is essential to halt the contraction in the EU market we are currently seeing and to help out the rest of the global market. The weather patterns we are seeing at the moment are unfortunately as unpredictable as ever though so it really is a hard one to call but other factors have to be taken into consideration also and if we also see an improvement in the economic outlook it would also generate a much needed boost to the dairy market.

 

Regards,

Ian Galletly,

Managing Director

 

 

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