Market Report Q1 2017

Dairy Market Report Q1 2017

Happy new year to everyone and let’s hope 2017 does not contain half the drama of the previous year! It is fair to say everyone was caught off guard with the level of pricing turbulence in the latter half of 2016. Such a sharp jump in prices over a short period of time is unprecedented and a clear sign of the unhealthy nature of the low milk prices in 2015. If there are any positives to be taken out of this period of volatility then it is the hope that milk prices will not be driven down again to such unsustainable levels for farmers.

There are finally signs of pricing stability as we move into the latter half of January. Trading was naturally conducted at a slower pace just after Christmas and many buyers are waiting for any signs of prices easing off. All eyes are looking ahead to the highly anticipated start of the milk production season in February. There is a belief that many farmers will be encouraged by the better returns currently on offer in the marketplace which should prompt higher levels of milk production again. However supply is still scarce in the meantime so everyone is relying on the production season to start without any burdens. While there is no doubt a healthy start to the milk production season will alleviate many supply shortfalls, a dramatic drop in pricing is far from
guaranteed yet.

According to Rabobank, global milk supply is still going to be in relatively poor shape for the short term as they don’t expect anything near normal service to be resumed until 2H 2017 at the earliest. This is due to the ever increasing demand of cheese and butter throughout Europe and the US so simply having milk supply back to normal levels will not necessarily be sufficient. It will also naturally take time for milk levels to grow rapidly again
as many farmers have taken permanent leave from the market after the nightmare of the last few years. China’s dairy purchasing has also seen a sharp uplift in recent months with growth levels of 20% predicted going forward. China’s huge demand requires much attention from the major processors and this could potentially lead to a shortfall in other areas of the global market. Cheese prices have been generally stable since the start of December but availability on Coloured and Mature Cheddar is still especially tight. Mozzarella prices have calmed down which is a great relief to many as it experienced severe volatility up until the end of November. Many buyers have secured sufficient stock and there are now not as many reports of anyone being left shorted by suppliers. Butter has also settled down and there are even some signs of prices easing slightly. However Butter supplies are still extremely tight and there is not much excess stock around so the milk production season cannot come soon enough for buyers. It is interesting to note that packet butter prices still remain the same despite the huge jump in the months leading up to Christmas.

Another key factor to take into account when looking at what’s in store for the dairy and general food industry is the volatile €/£ currency rate. Theresa May’s Brexit speech this week was much anticipated as there is a great need to provide clear information on Britain’s stance ahead of critical negotiations with the EU. However it is clear that we are in for a sustained period of uncertainty when it comes to Brexit and the currency rate in
general so traders will also need to very carefully take this into account when looking at longer term deals. As previously mentioned in this report, there is a general feeling that the events of 2016 could possibly permanently change how long term deals are agreed.

We at Ingredient Solutions are excited about what 2017 holds in store as we look ahead to another year. We hope 2017 is also prosperous for all of our customers and we hope we can help by being a reliable supplier of all your dairy needs at competitive pricing. Dairy prices are particularly high at the moment so we would expect to see easing in the next few months. However there are no guarantees in this current climate so we will proceed with caution. We can assure you however that we will strive to provide the best deal possible no matter what the market has in store for us!

Yours Sincerely

Ian Galletly