Are milk markets stabilising?

The prolonged downturn in milk prices has been attributed to a mixture of factors but it is the recurring theme of excess milk production that has gained the headlines. For any chance of recovery to become a reality, milk supply needs to be realigned with demand and the signs are that this could be starting to happen.

From a global perspective, the IFCN has looked to the prospects for the remainder of 2016.

Their analysis shows that the global milk supply will grow by 1.5% in 2016. This is lower than 2015 +1.8% and 2014 +3.2%. Yet milk demand growth for 2016 is estimated by IFCN to be 2%, which means that demand will surpass supply meaning that prices should start to recover.

q Milk Production Update

Northern Ireland – April saw the first year-on-year reduction since June 2013, down 2.06%.  April 2016 milk production was back to April 2014 levels.

United Kingdom - Milk deliveries in the UK remained below previous year levels throughout April and May. According to AHDB Dairy daily delivery figures, deliveries in May averaged 3.4% less than the same period in the previous year. Deliveries in the two weeks to 11 June are down 4.3% year on year.

q GB - GB milk production for May has been estimated at 1,116m litres, 3.2% down on May last year, and in line with May 2014. Based on May 2016 volumes, AHDB’s mathematical model gives a GB milk production prediction for 2016/17 of between 11.9 billion and 12.2 billion litres. The midpoint of this range, at just over 12.0bn litres, would be approximately 4% down on last year.

q EU - The revised EU forecasts put production for 9 months from Apr-Dec down 0.4% on 2015 volumes, a reduction of around 350m litres. Eurostat data has shown that French milk production in April fell again compared with last year, totalling 2.24 million tonnes, down 1.1% year on year but 1.1% ahead of the three year average for April.

This turn in production has come at an opportune time, not only have we reached peak production, but the Commission will soon start to empty Intervention stores, meaning that any overhang in stocks will disappear.

Any trend of falling milk production will be reflected in cow slaughter figures. The rate of year on year UK cow slaughters is continuing to increase. UK slaughters in April totalled 52,130 head, an increase from the 50,910 head slaughtered in March, up 12.2% on April 2015 bringing the cumulative slaughters for 2016 to date to 216,840 head, up 8.5% year on year.

q Market Update

Butter – Rises due to the increase in cream prices, as seen in Italy where prices have increased by €200/tonne.  Bulk butter selling well, with domestic demand strong.

SMP – demand is rising due to fears of scarcity of freely available production (i.e. that is not in Intervention).

WMP – demand in the market is supporting prices, however, this would be the one product seeing lower price rises.

Whey – prices up reflecting limited supplies

Oceania (GDT) - The latest GDT auction saw the all-product index remain unchanged, however butter, cheese and SMP rose. The next auction will take place 5 July.

Northern Ireland (MPI) - Since the last auction it is up from 16.41ppl to 17.21ppl. This is the highest MPI since November 2015 and the highest fortnight increase since September 2015.

q Conclusion

With demand gathering momentum, milk production falling at long last and commodity prices starting to rise, this would indicate that markets are stabilising and demand is improving. However, whilst the signs are looking more positive we need to recognise and accept that it will be a long road back to a sustained recovery. We should be aware that it will take time until any recovery reaches the farm-gate such was the prolonged period of low prices in the industry with many businesses having evaporated their cash flows to get their businesses through this exceptionally difficult time in our industry. The UFU will continue to address these issues and ensure that our dairy industry returns to profitability as soon as possible.