Category: Dairy & Livestock

GDT Price Falls

The average price index at the last two GDT auctions has fallen.  At the event held on 1st August the average price index was down by 1.6%.  Perhaps coming as somewhat of a surprise, the drop could actually have been further, if it hadn’t have been for Whole Milk Powder, which making up about half of all the product sold, increasing by 1.3%.  The only other product to see an increase was Buttermilk Powder by 0.4%.  At the latest event, held on 15th August, the average index fell marginally by 0.4%.  Once again WMP made up about half the product sold but at this event the price fell by 0.6%.  Other key changes over the two auctions held in August include:

  • Anhydrous Milk fat     -1.2% (-4.9% at the first event)
  • Cheddar                      +1.4% (-4.8%)
  • SMP                            +0.3% (-3.0%)

In the UK wholesale prices, other than SMP, have increased again through July, although at a slightly slower rate, continuing to put upward pressure on on farmgate prices.  Further price increases have been announced:

  • First Milk has increased its ‘A’ price from 1st August by 0.9ppl for their Scotland, East Wales and Midlands pools.  Its Haverfordwest and Lake District Pools have increased by 0.5ppl.  This is the last month where the ‘B’ price will be payable (see last month’s article) and this has remained at 25ppl
  • Paynes, Belton and Graham’s have all increased their price by 1ppl as from 1st August
  • Meadow Foods has announced it will be increasing its prices by 0.85ppl from 1st September, this follows a 1ppl increase in August.
  • Pensworth will be increasing its price from September by 0.75ppl

Small Dairy Farmers Payment

The RPA has started making payments to those who applied for the Small Dairy Farmers Scheme (See April’s article).  Payment rates were dependent on the number of applications, in England a total of £12.38 million has been made available.  The RPA is making payments to eligible claimants at a rate of 1.02078 pence per litre capped at 500,000 litres (£5,103.90).

The scheme was also available in Northern Ireland, but the payment rate has not been calculated yet.  The RPA aims to make payment to those Northern Ireland applicant’s by the end of September 2017.

Import Substitution

HDB Dairy is undertaking some analysis of how the domestic dairy industry could replace imports.  At present, the UK has the second largest trade deficit in dairy products in the world (behind China).  In volume terms, the amount exported is not that far behind imports – 1.1m tonnes of exports against 1.2m tonnes of imports in 2015 (note, however, that these export tonnages include liquid milk being sent to the Republic of Ireland for processing).  However, the value of the imported products tends to be much higher – the trade gap in value terms is around £1bn.  Much of the product has traditionally come from the EU.  With Brexit on the horizon, could some of this market be captured by domestic production?  The AHDB provide some statistics on key dairy products being imported (see table).  It does caution that the UK may not have the processing capacity devoted to some of these products, and also that the profitability of some of these markets may not be high enough to make them attractive.

 UK Dairy Trade in Tonnes

Imports

Exports

Balance
Cheddar

97

75

-22
Mozzarella

62

12

-50
Other Fresh Cheese

114

40

-74
Processed Cheese

55

11

-44
Yoghurt

147

21

-126
Butter

65

42

-23
Infant Milk Formula

80

5

-75

Source: HMRC

Dairy Roundup

Global Prices

GDT auction prices have held steady during July.  At the first event on the 4th, the index of all prices declined by 0.4%.  Then, at the second July auction on the 18th it rose by 0.2%.  The index now stands at $3,3387 per tonne.  This is 45% higher than at the same time last year.  Butter continues to be the star performer on the auction with prices going higher than $6,000 per tonne (a record for the GDT).

Production Estimates

Various estimates of production around the world have been published over the past month.  Starting at theglobal level, and with a long-term perspective, the OECD-FAO has produced its latest ‘Outlook’ report, providing forecasts through to 2026 (see http://www.oecd-ilibrary.org/agriculture-and-food/oecd-fao-agricultural-outlook-2017-2026_agr_outlook-2017-en).  This predicts global milk production will increase by 22% by 2026 compared to the 2014-16 base period.  But the rate of growth per annum (1.87%) is actually slightly lower than the increase seen over the last 10 years (1.94%).  Much of the growth will be in developing nations – India and Pakistan are specifically highlighted.  In the EU, production is forecast to increase by 0.8% per year over the next decade (down from 1.2% in the previous ten years).  In the US growth will be 1.1% (up from 1.0%, and in New Zealand it will be 2.3% (down from 4.0%).  In the short-term, none of the world’s major export regions (US, NZ, Australia, EU and Argentina) are showing much of a surge in production.  According to the AHDB, output is only marginally higher than in 2016. 

The EU Commission has updated its short-term market forecasts for 2017 and 2018 (see https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/short-term-outlook/current_en.pdf).  In dairy, production in 2017 is expected to increase by 0.7%.  This will be driven by increases in Ireland, Poland, the UK and Italy.  Against this, it is expected the output will be down in Germany and France, mainly because of unfavourable weather conditions, and in the Netherlands, because of the obligation to reduce the dairy herd in order to cut phosphate emissions.  The forecast is for a further increase in output of 0.9% in 2018.

In the UK, the production for the first quarter of the milk year (April to June) was only slightly higher than in 2016 – despite much improved market prices.  The AHDB runs a model to predict overall deliveries.  It is forecasting that output for the 2017/18 year will fall between 11.7 and 12.0bn litres.  At the mid-point of this range, it will be very close to the production seen in 2016/17.

Given the strong milk price, it is perhaps surprising that output (both in the UK and further afield) has remained quite muted.  Farmers are well-aware of previous boom-and-bust cycles and may be wary of increasing production.  Many will be repairing the financial damage done by the past couple of seasons before considering investing in expansion. 

Prices

Fats, especially butter, continue to drive milk prices – not just in the UK but in Europe and Oceania too.  With markets strong, there have been a number of significant price announcements;

  • Arla is increasing its standard manufacturing price by 1€c per kg form the 1st August.  This results in a increase of 0.81ppl in the UK, giving a price of 29.98ppl.  Arla state this equates to a liquid price of 28.82ppl.
  • Meadow Foods is increasing its ‘A’ price by 0.85ppl from the 1st September giving a standard price of 29ppl.  This follows a 1ppl price rise from the 1st August.
  • Dairy Crest has reversed part of its previously-announced price cuts.  The firm reduced prices by 1ppl in both June and July and agreed to freeze prices until the end of September.  However, DC now says that 1ppl will be returned as from the 1st September resulting in a milk price of 29ppl.
  • First Milk are to scrap ‘A’ and ‘B’ pricing as from the 1st September.  The company is also moving to every-other-day collection for all its supplies.
  • From the 1st August, Payne Dairies is increasing its price by 1ppl and Yew Tree Dairies by 1.5ppl.

TB Control Measures

DEFRA has launched a consultation on proposals to change the TB control measures in England.  The proposals include the introduction of six-monthly surveillance testing of higher risk herds in the High Risk Area.  This received, in general, a positive response to the ‘call for views’ in August 2016.  Currently, the TB testing landscape across the High Risk Area is complex, with herds receiving multiple types of ad hoc testing.  The proposals aim to rationalise this regime, by moving to six monthly routine surveillance testing, with the opportunity of less frequent testing of lower risk herds.  DEFRA estimates that 80% of herds in the High Risk Area will actually face fewer TB tests than they do at present.  The other key proposals include:

  • Increased use of private vets
  • Changes to TB compensation system to encourage risk reducing behaviour on-farm.

The full consultation can be found at: https://consult.defra.gov.uk/bovine-tb/simplifying-testing-and-other-control-measures/ Responses need to be submitted by 29th September 2017.

Morrisons Goes 100% British

Morrison’s announced at the Great Yorkshire Show that it will be using 100% British meat for its own-label brand ‘Market Deals’.  This will mean the retailer will stop selling fresh imported lamb from New Zealand and Australia.  The move follows the Co-op’s pledge, back in May, to switch to selling 100% British fresh meat all year round.  Whilst both are very welcome, the move by Morrisons is possibly more important, due tothe scale of the retailer.

Butter and Cream

Producers have been told to be cautious about ramping up production following comments by Arla CEO Peder Tuborgh that there will be a butter and cream shortage at Christmas.  Fats have been the main driving force behind the increase in commodity prices and rising farmgate prices.  AHDB figures show that butter and cream prices have more than doubled since this time last year.  Butter values have risen by £800 per tonne in a month to average £5,100 per tonne in June, whilst bulk cream values have increased by more than £400 to average £2,370 per tonne.

The value of butter is now accounting for more than 65% of AMPE, normally it contributes about 45-50% with the remainder being made up by powders; SMP and WMP.  With powder prices being constrained by intervention stocks, it is the butter market that is applying upward pressure on farmgate prices. UK butterfat is currently below last year levels, cumulative levels show it at 4.02% in May, compared to 4.07% in 2016, but ahead of the 5 year average at 4%.

However, it seems pretty unbelievable that, when dairy farmers are still recovering from the last couple of years, during which they were told that there was too much milk about and producers were being compensated for reducing production, we are now being told that we face a shortage.  Processors need to be working with producers and sending out better market signals to farmers as this boom and bust cycle is obviously not sustainable. 

Fish Food

The European Commission has authorised the use of processed proteins derived from insects to be used in farmed fish food.  The European Compound Feed Manufacturers’ Federation has described the decision as a ‘promising alternative source of protein for animal feed’.

Scottish Dairy Aid

Rural Economy Secretary, Fergus Ewing, has announced EU funding for dairy farmers in Scotland should now be arriving in bank accounts.  Funding was made available to Member States in the wake of the significant downturn experienced in the dairy sector in 2015 and 2016.  To ensure all the funds are used and are targeted towards the hardest hit they will be distributed as follows:

  • £5,000 each to farmers on Bute, Arran, Mull and the Kintyrepeninsula
  • £4,250 each for those receiving less than 20ppl in 2016
  • £2,500 each for those receiving less than 25ppl in 2016
  • £1,500 each for those receiving more than 25ppl in 2016
  • Supplementary payment of £452.72 for those who produced less than 1,000,000 litres in 2015

Intervention SMP

Member States have given the go ahead to sell 100 tonnes of SMP out of EU intervention.  This is the first time since December 2016 that any bids have been accepted when just 40 tonnes were sold.  Belgium and Poland both lodged bids for a total quantity of 1,340 tonnes, with just 100 tonnes being accepted.  Prices ranged from €138/100kg to €185/100kg; this compares to the current market price of €200/100kg, although it must be remembered the intervention powder is about two years old.  To put this sale into context, it is only a very small amount, there is about 354,000 tonnes in EU public intervention stores.