Category: Dairy & Livestock

The latest GDT (Global Dairy Trade) results show the average price index has fallen for the third consecutive event in a row.  At the auction on 7^th November the price index fell by 3.5% to $3,105, this was mainly due to a 5.5% fall in WMP which made up over half of the product sold.  Both the butter and cheddar indexes also recorded a decrease by -3.6% and -2.8% respectively.  SMP bucked the trend, accounting for nearly a quarter of all product sold, its price index increased by 7.2%.  New Zealand is currently in its peak production period and, although output this year hasn’t been as good as in 2016, deliveries are expected to show some improvement as the weather conditions improve, which probably explains part of the reason for the decrease.

With commodity prices seemingly under pressure, UK farmgate price increases are starting to slow with the market.  Arla has frozen its prices for November and the Muller direct November price is to remain the same for December.  Many of the other increases for November have been for less than 1ppl (see last month’s article).  Muller Tesco suppliers are the only ones to receive a price cut so far, decreasing by 0.13ppl.

If wholesale prices continue to fall, farmgate prices will inevitably decrease.  However commodity prices seem to have fallen significantly without much of a change in market dynamics.  Milk production is higher compared with last year, but the EU’s Milk Production Reduction Scheme commenced this time in 2016.  In the UK, cumulative production for 2017/18 up to September stands at 7,323.6m litres.  This is 174.7m litres more than 2015/16 but 296m litres less than in 2015/16 and 79.8m litres less than at the same time in 2014/15.  Stocks, apart from SMP are also relatively stable and although they have fallen recently are still relatively high compared to historic levels.  It does appear though that buyers have seen production rising and are now waiting to see if prices fall any further.

Further consolidation is to take place in the poultry meat sector.  Following 2 Sisters Food Group acquiring Grove Turkeys & Bernard Matthews, and US based Pilgrim’s Pride’s acquisition of Moy Park, Cargill & Faccenda Foods have announced plans to establish a Joint Venture (JV).  The new company will be a standalone business, with Cargill and Faccenda taking an equal shareholding.  The JV is subject to clearance by the relevant regulatory authorities; once the deal has been completed the JV will be named.  Cargill (which used to trade under the ‘Sun Valley’ brand) and Faccenda are currently the third and fourth largest poultry processors in the UK.  The new merged venture will stay in third place, behind 2 Sisters as the largest and Moy Park in second. 

Finished cattle prices have continued to fall through October.  The GB All Steers average deadweight price for the week ending 21^st October stood at 361p per kg.  At the beginning of September the price was 375p per kg, 24p per kg above year-earlier levels, this gap has narrowed to just 9p per kg.  Demand is expected to increase as we head towards the Christmas procurement period, but over recent years prices have rather plateaued between now and Christmas.

The deadweight sheep market is now trading at a similar level to last year.  After a significant price improvement in mid-May, the market traded above year-earlier levels throughout the summer but fell below those obtained in 2016 in mid-September.  The average SQQ for the week ending 21^st October is 386p per kg; just rising back above the equivalent week last year by 5p per kg.  The market remains pretty directionless.

The GB pig price continues to decline.  The EU-spec SPP has fallen for 9 consecutive weeks and for the week ending 21^st October stands at 157p per kg, the lowest since April, although this is still 11p higher than year-earlier levels.  Ample supplies and heavier carcase weights are affecting prices.  Even so, UK prices have not fallen by as much as EU values, which have declined significantly over the last four weeks.  In Euro terms this means the gap between the UK and EU reference price has grown over the last month to €25.50/100kg, the largest since the start of 2017.

There have been more milk price rise announcements (see below) over the month but there is a sense that the market is maybe peaking.  However, a couple of recent announcements may prevent production going into to oversupply.

As key export regions showed signs of a recovery in production, the Global Dairy Trade (GDT) auction recorded a decrease in its average index of -2.4% and -1.0% to $3,204 in the last two auctions held on 3^rd October and 17^th October respectively.  At the latest event, SMP was down -5.6%.  Over half of the product sold was WMP and the price for this fell by -0.1% with butter and cheddar both seeing a decrease by -2,5% and 0.1% respectively.

According to the latest figures from the AHDB, milk production from the five key global exporting regions (EU-28, Argentina, Australia, New Zealand and the US) for August was 2.2% higher than last year.  Estimated daily deliveries from the EU were up by 3.6% compared to year-earlier levels.  France recorded growth for the first time this year and Germany is also starting to show signs of recovery.  Poland, Ireland and Italy continue to demonstrate significant rises.  Looking further afield, in the US, favourable weather conditions has seen higher production, Australia is expecting to see a recovery this year after a difficult 18 months and both Brazil and Argentina are experiencing higher production.

In contrast though, Fonterra has made a significant cut to its milk production forecast for New Zealand; from 3.2% growth down to 0.9% for its 2017/18 season (June to May).  Poor weather conditions in August and September has seen production 2% lower than last year for each of these months.  In addition, Chinese production forecasts have also been revised downwards and with increasing demand in China this should lead to a rise in imports.  These latest announcements from New Zealand and China should provide some support for global markets and hopefully prevent a sudden change in direction for milk prices.

Recent UK milk price announcements as from 1^st November include:

• 0.5ppl increase for First Milk suppliers
• 0.75ppl increase for suppliers to Belton Farms
• South Caernarfon Creameries have announced a ‘winter premium’ of 0.5ppl from 1^st November to 28^th February
• 0.5ppl increase for Dairy Crest, Davidstow suppliers
• 0.8ppl and 0.36ppl increases for Waitrose and Marks & Spencer suppliers.

After seeing the average GDT price index fall marginally at both events in August, the reverse has happened in September.  The average price index rose by 0.3% at the beginning of the month and again by a further 0.9% at the event held on 19^th September to average $3,368 per tonne.  Whole Milk Powder (WMP) made up over half the product sold at the latest event and increased by 0.6%.  By contrast Skimmed Milk Powder (SMP), which made up just under a quarter of the total products sold decreased by 1.2%.  Fats continue to perform well and remain the dominant driving force behind the increase in the farmgate milk price.  Anhydrous Milk Fat and Butter saw their price indices increase by 5.3% and 1.2% respectively.

Domestic production remains relatively tight, also helping to support the increase in the farmgate milk price.  August delivery figures are not available until 28^th September but, although July’s production was 1.8% more than for the same month in 2016, it was 6.4% less than that recorded in 2015.  According to DEFRA, production for the period April to July is 1.3% more than for the same period in 2016 but 4.4% less than a couple of years ago.  In addition, AHDB Dairy has estimated GB milk deliveries, have fallen by 13% between the middle of May and the middle of August, this is on a par with last year, but significantly it is more of a decline than the five-year average which shows a 10% drop over this period.

Increases in milk prices keep being announced, some of the most notable include below:

• Arla has announced an increase to its manufactured price by 1.5ppl per litre from 1^st October and by 1.43ppl for its liquid suppliers
• First Milk increased its Septembers milk price by 1ppl for its Haverfordwest and Cumbria suppliers and by 1.1ppl for Midlands and Scotland suppliers.
• Muller, South Caernarfon, Wyke Farms, Graham’s Dairies and Meadow Foods have all announced a 1ppl increase as from 1^st October.

 Whilst these moves are all positive for producers, there is a sense that the market might be approaching its peak.  The number of farmgate price increases being announced is starting to slow down, and there could be a relatively quiet period up to Christmas.