Milk processors report that supplies are still tight in March and this is helping to keep competition going for any supplies that are available.
The UK has also been affected by currency volatility with Sterling devaluing against the Euro since the beginning of January by virtually the same proportion as the Dollar. This will, over time, make UK imports more expensive and it has already this year pushed up the UK Intervention price for butter by £116/tonne and skim milk powder by £90/tonne.
UK commodity markets have generally been dull over the past month with bulk butter prices showing modest week-to-week fluctuations. Mild Cheddar prices have remained stable from February to March, although availability is limited, particularly of mature cheese. Bulk fresh cream exports have benefited slightly from the higher value of the Euro. SMP is trading in a wide price range.
EU milk production rose by 1.2 per cent in January compared to January 2007, the second month of significant expansion after being below levels in the previous year from May to October 2007.
Cheese output grew in January by 0.8 per cent compared to 2007, with cheese/whey realisations not yet high enough compared to butter/powder to begin a major switch back into cheese manufacture. Butter and SMP production continued to rise, up by 5.5 per cent and 3.5 per cent respectively in January 2008 compared to 12 months previously, despite falling market prices.
The increase in EU milk deliveries in January 2008 was influenced by a seven per cent increase in France. Milk supplies also began to grow again in Germany, Czech Republic, Spain, Portugal, Poland and the Netherlands, due to better weather and higher milk prices, but there continued to be significant decreases in Finland, Sweden and the UK.
Liquid milk sales were reported to be 1.1 per cent higher in January 2008 compared to January 2007. Liquid sales for the calendar year 2007 were slightly lower (-0.5 per cent) compared to 2006.
Fermented product manufacture, including yoghurt, keffir, fermented milk drinks and desserts, continued to grow steadily, up by 2.1 per cent in 2007 compared to 2006, and continued to expand in January. However, output in Germany over the past three months has fallen as price rises began to affect consumer demand.
Cheese production in January and December grew by just under one per cent year-on-year, roughly in line with the expected rise in EU demand.
In 2007, output was 1.5 per cent above 2006 levels. But year-on-year growth in cheese production moderated substantially from May 2007 onwards as returns from butter/powder moved above returns from making cheese. The rise in production in January 2008 was due to year on year increases in France, Poland and Italy.
In January there were double digit increases in butter output in France and Germany. EU butter production had been rising year-on-year since July 2007 after falling since the middle of 2005.
In the second half
of 2007, production increased by an average of four per cent, the first significant year-on-year increases for two years; market prices for butter began to fall from October onwards. For 2007, butter output was 1.3 per cent higher than in 2006.
SMP production in January also grew substantially in France and Germany. In 2007, output increased by five per cent on 2006 but between March and September 2007, SMP production was significantly above 2006 levels and a sign of a major response to rising prices and high demand from the world market.
From November, onwards output continued to be above 2006 levels but the increase was modest compared to earlier months. Whole milk powder (WMP) manufacture was 0.7 per cent up in 2007, but was estimated to fall by 2.1 per cent in January 2008, mainly because of low exports. Condensed milk manufacture was 9.3 per cent down in January 2008, after a 0.5 per cent fall in 2007 compared to 2006.