news brief 8th August 2014
Dairy market shockwaves intensify after GDT By Chris Walkland, who also does market analysis for the Provision Trade Federation and British Dairying
Any illusions that the shockwaves which are currently reverberating around dairy markets might be short lived were shattered again by this week's Global Dairy Trade auction - down over 8% AGAIN. This is unprecedented volatility. Fonterra have given a stark indication of what this means for their farmers with a new milk price of $6/kg – the equivalent of around 23ppl. That’s nearly 30% down on last year. And this price was cited before the latest GDT result. Global markets, overall, are now close to 50% down this year.
50%
The last report set out the main reasons behind the current market conditions – global milk production increasing due to the weather, and a favourable milk price/feed price ratio twinned, critically, with Chinese dairy buyers staying away from the market with little appetite to soak up the extra production. With 2014 a good year for grass silage (for volume if not necessarily for quality) and looking spectacular for maize with all the sun we've had, plus easing feed prices (maybe) and the tendency of farmers to produce more milk when the price comes down, it's hard to see anything but plentiful amounts of milk being produced going forward, unless the weather starts to dry up paddocks in key milk fields soon.
Measures we’re taking… As a Board, we recognise the impact that these price cuts are having on your cash flow. I want to explain our own position, and what actions we are taking. While cheese, cream and whey have seen falls over the last six months, powder and butter prices are hitting our returns particularly hard. Westbury, which late last year was supporting a milk price of 32.5ppl, has seen net returns drop by around a third in less than six months. We are obviously not able to control market prices, however we are taking actions across a number of areas. Admittedly, against a huge decline in market prices, these actions will have a limited impact, but we will continue to focus efforts
July has seen a surge in volumes again, which are tracking around 8% higher than we're used to consequently the spot price has dipped further, and is now at 24 to 26ppl. Across the water in Ireland June's production figures are up by 3.8% and there is little doubt there will be a high allocation of milk to cheese this year.
UK production
8%
On top of this nobody is clear on what the implication of the new retail world (i.e. the rise of the discounters, the internet shopping boom, the major retailers in a muddle etc.) will be for the sector. Domestically and globally the industry is facing numerous pressures right now, therefore, and there are no quick fixes for any of them.
from Sir Jim Paice MP: on managing the areas that we can control. Firstly, as milk volumes drop away, we have the opportunity to choose between milk brokerage opportunities, cheese, curd or Westbury to select the best returns for your milk. Over the last few weeks, we have sold some milk to brokerage customers which reduces the amount of volume we are putting through Westbury. Additionally, we have forward sold powder to one large European player at prices well ahead of the current GDT level. Secondly, as you will read elsewhere in this News Brief, our brands like our Team Sky breakfast range has secured a
stream of listings and Lake District Dairy Company Quark has similarly achieved broader listings. These added value brands will play a role in protecting us from volatile commodity market in the future. Thirdly, we are looking at every corner of the business for ways to take out cost and improve the returns we can pass to you. This has involved reducing the amount of people we have at all levels of the business and is an ongoing process. We talked through some further options when we met with your area representatives earlier this week, and will update you over the coming weeks as specific decisions are made.
Listings update for your foods! In order for your business to be less reliant on global commodity markets, and to deliver more stable returns, it is key that we continue to grow our dairy nutrition and lifestyle nutrition strategy, with our CNP and Lake District Dairy Co. brands. We are securing more listings across these ranges. Our Team Sky Breakfast Range is now available in select Nisa and Argos stores around the UK, and online at Amazon.co.uk – the country’s biggest online retailer, and holidaymakers can buy the range in the UK’s Centreparcs resorts.
Don’t forget that the smoothies are available in over 500 Tesco Stores too, as well as various independent gyms and cycle stores.
You can pick up Lake District cheddar in Tesco stores throughout the UK, as well as at Morrisons and Booths deli counters.
Quark Availability: We’ve also secured the first listing for our brand new cooking sauces. Pick up a pot of the Garlic & Herb flavour in Sainsbury’s stores from 20th August.
Remember you can buy our range of cheddars and Quark online at the Little Cheese Shop, quoting your member number at the checkout to obtain your 20% discount!