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.
Butter pricing has been the driving force of the volatile dairy industry over the last few years so it is a good place to start with our current assessment. Butter prices have seen a significant fall since the start of the year. In January butter was trading at around the €4500/ton mark but today the price is around €3800/ton. Many observers believe that butter is over supplied in the marketplace at the moment as manufacturers anticipated another glut at the start of the year. This has resulted in the current situation of over- supply and buyers are not under any pressure to commit to large volumes in a falling market.
The dramatic increase of butter prices since Q1 2017 caused major volatility across all sectors so this current contrast has brought calm to most cheese prices. There has been minimal movement on Cheddar prices since the start of 2019 with a slight increase of €50-100/ton on Mild White & Red Cheddar. Most other cheese prices have also remained static since start of the year but Mozzarella has again been an exception due to high demand across the globe putting supply under pressure. The increase in price has not been as dramatic as previous years but Mozzarella prices have risen by around €250/ton since January so it’s still very significant in comparison to the rest of the market.
The demand for Mozzarella keeps increasing as the global appetite for pizza especially shows no sign of slowing down. Even large manufacturers in Europe are finding it difficult to sustain the global demand so there are plans in place from some of the major players to increase their capacity. Glanbia’s proposed new Mozzarella plant for Portlaoise in the Irish midlands received a major boost in March as an objection to the new plant was withdrawn. Glanbia is Europe’s leading Mozzarella manufacturer and the new plant will have a capacity of 45,000 tons per year once opened. This will add significant volume for the biggest producer in Europe and will be a big boost to sustaining demand. Glanbia hope to open the plant in 2020.
Another big move in the Mozzarella market was announced by another major Irish producer Carbery who have also announced plans for expanding their current plant in Cork. There are looking to invest up to €80m to facilitate Mozzarella production. Carbery are a major supplier of Cheddar to the UK so with Brexit looming this is a move to diversify away from the UK market and expand into Europe and further afield. There will be extra capacity to process up to 4 million litres of milk per day and the scale of this operation should also be able to alleviate some of the pressure on Mozzarella supply. Carbery already have significant presence across the global market with their famous Dubliner brand sold all over the world. It will be interesting to see how their entry into the competitive Mozzarella market will fare and if it will help tip the scales of the supply-demand dynamic.
There have been major protests in France and this time it’s not the gilets jaunes that authorities need to be worried about! This time the protests have been about the much loved iconic French Camembert cheese. It was announced that mass produced Camembert which most consumers across the continent are familiar with has been granted PDO status.
Traditionally produced Camembert in the Normandy region was the only Camembert bestowed with this honour before the announcement. This product is manufactured with unpasteurised milk and supply also needs to come from a defined region of Normandy. This move infuriated traditionalists in the Normandy milk producing region and protests occurred outside the Assemblee Nationale with some even going as far as posting highly mature fragrant cheese through the letterboxes of politicians involved in the announcement! The French market had significant amount of cheese manufactured with unpasteurised milk in the past but this is declining rapidly to reflect changing consumer trends towards pasteurised product.
In contrast to the European market which is often under supplied in recent years there are reports coming from the United States where there are significant stocks of cheese waiting to be moved due to lack of demand.
American farmers have struggled in recent years with low milk prices due to high demand and this has caused over production. Consumers are also moving away from American processed cheese which satisfied the demand of most of the market in the past. Consumers are now trying European cheese and are finding it is appealing to their palate in contrast to the flavour disparity with processed cheese. Of course politics has also played a part in this dilemma as the Trump government implemented tariffs against Canada, China & Mexico’s dairy goods which prompted retaliatory measures. These were key export markets for the US so as long as these tariffs are in place it is hard to see the situation changing soon.
There are reports of cheese mountains sitting in storage across the US and key production regions such as Wisconsin are already feeling the pain.