Dairy Market Report Q2 2017

As we look ahead to the summer months there are signs of relative stability in the dairy industry which has calmed fears of long term turbulence. The milk production season has started strongly due to favourable weather conditions. This has significantly boosted stock levels and prices have eased from the very high levels witnessed in Q4 2016. Prices are still far above the low levels of this time last year however so buyers are hopeful the reductions will continue throughout the year. While there has been much optimism from buyers in the last few months it is unrealistic to think the prices of 2015/1H 2016 will be reached again soon.

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©PTF Dairy Market Report April 2017

Cheese prices have eased back with much more available supply. Mild Cheddar prices are now around £2850 for white and £2950 for coloured.

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Mozzarella supplies have also reached a healthy level again which has come to the huge relief of buyers after the extreme volatility of 2H 2016. Mature Cheddar prices have bucked the trend as they have remained stable throughout the year.

Stock supplies are still tight which has kept the Mature prices firm and the higher milk price used now to make Cheddar will also come into effect later in this quarter. Edam and Gouda prices remain at very low levels but there are initial signs they may strengthen slightly as they have more than likely reached their bottom level.

Not everything has gone in favour of buyers in the market though as butter has recently bucked the trend of weakening prices. Butter prices had initially eased significantly at the start of the year. Butter was especially volatile when milk supply fell off the cliff in 2H 2016 so buyers were especially relieved to reach what they thought would be a period of stability. However the easing of the price did not continue due to an exceptional demand for fat from the Middle East, North Africa & South America. This put huge pressure on butter supplies

and prices strengthened by around £300/ton in less than 2 months. Levels of fat supply are still under pressure due to the higher demand but buyers are hopeful the strong start to the milk production season will bring the price back in their favour.

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© Brian Gould, Agricultural and Applied Economics, UW Madison

Butter sellers have been boosted by the recent resurgence of prices and they have more reasons for optimism as Unilever’s decision to sell their spreads business epitomises the decreasing popularity of margarine. Sales of margarine have been on the slide for a considerable time due to consumers’ increasing scepticism towards processed food. Spreads manufacturers did make the effort to remove hydrogenated fats from their products but this has not regained the complete confidence of consumers. Margarine sales have declined sharply in the last 5 years especially and Unilever have decided the sector is not profitable enough anymore. In contrast, butter sales have increased over the same period of time as consumers have more trust in a natural product which is great news for the dairy sector.

Unilever always had margarine as a staple product ever since their formation in 1929. They would not have taken the decision lightly to sell off their margarine business so it is the strongest indication yet that the sector does not have a bright long term future. There are also reports of a significant increase of popularity in the US market for butter over margarine.

Mc Donalds recently made the decision to replace margarine in their menu with butter5 and the move has enjoyed initial success. New butter based products are also becoming increasingly popular in the US which is further driving demand. There are predictions of a nearly 10% increase of butter consumption in the US market this year which is causing great optimism among manufacturers.

If milk production levels keep increasing over the next few months there are reasons for buyers to be optimistic. However there are still reasons for caution as the market still has not fully recovered from the volatile conditions of 2H 2016. The strengthening of butter prices are also a good indication towards the fragility of supply at times. We would not be surprised at anything anymore after what happened last year in such a short space of time. We will remain committed to securing the best possible deal for our customers and hopefully we proved we were a reliable source of dairy supply at competitive prices in challenging market conditions. We will look forward to the summer months with optimism and keep you updated on any developments in the market.

Yours Sincerely,

Ian Galletly