Dairy Market Report Q4 2016
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.
The speed with which the market moved has shocked observers and it most definitely will change how deals are agreed in the future. Many have been left seriously burnt as there were numerous long term pricing deals agreed at the start of the year. This was due to the confident predictions that the glut of supply we witnessed after the milk quota abolitions would remain. There were no obvious indications that this would change but maybe the industry should have been more conscious of the struggles farmers were experiencing. The milk price had reached such a pitiful level that farmers were not breaking even and this was of course unsustainable.
Butter prices have experienced the most volatility in recent months. There has been a jump of over €1500/ton and the prices show no sign of abating with bold quotes for Q4 on offer from processors. The situation is so ridiculous that it is cheaper to buy packet butter in the supermarket rather than bulk! Cheese prices have followed in a similar fashion with particular volatility in Mozzarella prices. There has been an increase of €1200/ton in Mozzarella as supply seems to become scarcer by the week. Cheddar was lagging slightly behind but it is fast catching up with a hike of around €1000/ton. Even curd is becoming a precious commodity with prices nearly at the same level as 3 month old Cheddar.
All eyes will now turn to the milk price as farmers anticipate the market resurgence to be diverted into their pockets. All of the major dairies have increased their prices but we are witnessing a familiar scenario where farmers are not satisfied they are being fully rewarded.
We can only hope that we see this being rectified over Q4 and then we may see a significant number entering the marketplace again to rectify the current supply crisis. The processors need their farmer suppliers now more than ever so it should not be a surprise to see a very big increase in the milk price in the coming months. Dairygold boss Jim Woulfe has predicted the 2017 milk price to hit 31c/l, some35% higher than the current average.
As the industry finds itself in a major supply crisis, it is extremely important to maintain close customer-supplier relations to ensure availability of stock. We at Ingredient Solutions have never let any of our customers down in our 16 years of existence and we can assure all of our customers we stick to our promises. We have very close relations with our own suppliers and as a result we have sufficient stock secured for Q4. While stock is scarce in the marketplace we are adequately covered so it is in challenging times like this where I hope we show our worth. We always put our customers first so please be assured you can rely on us as your long term dairy partner.