As mentioned in the previous post many buyers were caught unaware yet again as butter soared in price over Q2 due to ever increasing demand. The price neared the astounding levels seen in 2017 where record prices were shattered.

That record price hike was considered initially as a freak occurrence but it now seems to be making itself a permanent feature in the market as prices are now hovering around the €5500/ton mark. This is considerably lower than the €7000/ton peak reached last year but when you consider the historical butter prices it is still at an extremely high level. This must be of huge concern to buyers all across the industry as it is fair to assume absolutely nobody foresaw this prolonged period of steep prices. Is it likely to come back? Simple logic would have to say surely soon but all the fundamentals we have based predictions on in the past now look increasingly futile in an unpredictable environment!

As previously alluded to the record breaking summer we have experienced so far has been great for holiday makers and beach goers but the drought is causing great concern among farmers. Many have already been forced to dig in to their winter silage supply to sustain their herds due to the lack of grass growth.

The extra costs of buying in extra feed are also taking their toll and are impacting the bottom line. The normally lush green pastures of rural UK & Ireland are now an arid brown and this was clearly evident at the recent Open at Carnoustie which visually looked more like a Dubai Desert Classic! There has been a small amount of rain in recent days but nothing too substantial and farmers will need the heavens to open up some more to relieve some of the pressure they face. The conundrum is simple, if the drought continues and farmers are further hindered there will have to be an effect on dairy commodity prices. The last thing we need is another factor coming in to play to drive prices to an even more silly level so we will watch this one with bated breath.

Mozzarella is another product that, like butter, has experienced a volatile upwards trajectory over the last while. Many felt the sharp increases last year were also an aberration but this prediction didn’t hold out as we yet again saw a big increase over Q2.

Mozzarella prices are now around the €3500/ton mark. While other cheese products also went up in price they didn’t move half as much as Mozzarella. This can mainly be attributed to the fact that Mozzarella is a truly global cheese and demand for pizza is prevalent across every continent. This has left producers scrambling to keep up with supply and the acute shortage was especially felt in May when the prices first started to move. This was very similar to last year when producers were able to name their price and buyers snapped product up without second thought.

The volatility of both butter and mozzarella offer an interesting dynamic into the overall health of the dairy industry. We must ponder if we have fully recovered yet from record low milk prices a few years ago which greatly affected the overall health of the market.

Despite the continued turbulence on pricing, particularly evident for butter and mozzarella, we can at least now say we have experienced relative stability over the last few weeks. However this can possibly be linked with the holiday season and traders have been quiet. Another cloud looming on the horizon however is Brexit, and negotiations don’t seem to be making much progress.

The threat of a deadlock between both sides now seems to be a growing possibility and major dairies have warned of the potential impact this could have. The UK relies heavily on imported dairy product to sustain demand so shoppers will feel the pinch if there is an unfavourable deal. The Guardian reports that the head of Arla, Ash Amirahmadi, has warned of the potential increase in costs to their product post Brexit due to the extra time transporting goods will take. According to him shortages of product will become more common and everyday staples we take for granted today could soon turn in to luxury products.

Value of UK cheese exports rose by 23% in 2017

On a brighter note there are reports of a boom in UK cheese production which has been driven by demand from Asia. Value of UK cheese exports rose by 23% in 2017 which included a 27% increase in exports to the Philippines and a significant increase to the booming Chinese market. Demand for classic British Stilton is a big driver of this new route to market but interestingly there has also been a big demand for British Mozzarella and Cottage Cheese. The decline in the value of Sterling has no doubt made prices more competitive for British producers but this does offer some light at the end of the tunnel in terms of potential possibilities in a post Brexit environment. The taste for dairy is ever increasing in the emerging Asian market and if the UK can stake a claim on even a small percentage of this market it opens up many potential opportunities.