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Brighter dairy prospects but expect more volatility

The dairy market has been amongst the most volatile since the beginning of the Covid-19 crisis.

British milk production is about 2 per cent lower than a year ago.
British milk production is about 2 per cent lower than a year ago.
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Brighter dairy prospects but expect more volatility

Exposure to the foodservice sector meant that prices for some producers plunged as lockdown hit, but there is a much firmer tone to the market now.

 

“The market is much more favourable now than it was at the start of the crisis, but don’t rule out more volatility for the rest of the year,” said Pat Clayton, AHDB senior dairy analyst.

 

“There was evidence of an increase in demand when takeaway restaurants started reopening, but that has slowed. We are now expecting another increase when pubs and other eating places reopen.

 

"Despite the return of some foodservice sales, the market is expected to be imbalanced in favour of retail sales for at least the rest of the year.”

 

Retail sales remain much stronger than in previous years.

 

In the week to 7 June total retail milk sales were 11.6 per cent higher than in the same week last year, with cheese sales 26.0 per cent higher, according to figures by research company Kantar for the AHDB.


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Retail

 

However, with up to a third of dairy sales out of home, the increase in retail sales continues to be counter-balanced by much reduced foodservice demand.

 

British milk production is about two per cent lower than a year ago, partly as the result of dairies cutting back processing in March, April and May.

 

Volumes may rise later in the year as demand increases.

 

European production is expected to be 0.5 per cent higher this year, according to the AHDB, but most of that growth will have taken place in the first three months of the year before the crisis took hold.

 

Market support measures by the EU and individual countries appear to have had little impact on supply or demand.

EU market support comes in contrast to the US

There a large-scale government support and insurance has maintained prices and demand. In recent weeks US prices have risen well above pre-Covid-19 levels, with the Chicago CME July 2020 milk futures price 12 per cent higher than the end of March value and 45 per cent higher than low price achieved in late April.

 

There was a 1.9 per cent increase in Global Dairy Trade auction price on 16 July, with higher milk powder prices outweighing a small drop in butter values.

Farmgate prices

So far the stronger dairy market has not been felt in higher farmgate prices, with most dairies holding July prices and those previously exposed to the foodservice sector increasing prices to make up for swingeing cuts from March onwards.

 

Producers will be expecting increases from August onwards and will want answers if they do not materialise.

 

The brighter outlook for the dairy industry has spilled over into higher dairy cow prices.

 

“A combination of more optimism, reduced cattle numbers and disruption to the import market for cows from the continent has helped push prices up,” said Glyn Lucas, dairy auctioneer with Harrison and Hetherington.

 

“There is particular demand for cows that are calving in late summer or autumn which will be able to produce milk for processors who have encouraged producers to increase output later in the year.”

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