Dairy supply chain pressure

AHDB Dairy, formerly DairyCo, is reporting that dairy processors around the word are reflecting the effects of low dairy prices in the form of job losses.

The recent announcement of job cuts at Fonterra is believed to be in the hundreds as the company expects cuts in support and group roles.

Fonterra are in the process of conducting a company-wide review.

Elsewhere FrieslandCampina has announced plans to cut between 330 and 375 jobs at two production sites in the Netherlands, while in the UK 43 jobs are believed to be under threat at Müller Wiseman’s site at Market Drayton in Shropshire.

The reason behind these job losses is an increase in focus by processors to cut costs and improve efficiencies.

Meanwhile, the latest Rabobank Dairy Quarterly report has suggested that a recovery in wholesale prices is unlikely to happen in 2015.

Globally milk production is still growing at a higher rate than demand and 
this imbalance has been forecast to continue into 2016, as demand from China and Russia is expected to remain weak.

The first half of 2016 is expected to bring some better prospects of price recovery although the more significant increase in prices is unlikely to occur before the second half of the year.

If Rabobank’s predictions come into fruition it is unlikely UK farmgate prices will see any major signs of recovery until post-flush 2016.

Adverse weather, greater than expected increase in EU post-quota production or under/overestimated China stock figures could all change these forecasts.

After the unexpected increases in February, the Global Dairy Trade (GDT) auction results have been falling ever since.

However, the falls recently have been getting smaller and the latest auction has seen a reduction of only 1.3%.

While any reduction is not good news, it is clear prices may be getting closer to stabilising.