Intervention stock – some thoughts on how to dispose of it
The Council of Agriculture Minister has rubberstamped earlier this month the decision by the EU Commission to remove the fixed price from any potential intervention buying in this year. In practice, it means the Commission may, if it so chooses, not purchase any product into intervention when it opens in March, or to purchase it at a price below the €1698 reference price.
While one can understand it is problematic to be adding more stock to the existing 370,000t overhanging the market, the Commission really needs to get stuck into how to dispose of it.
Interesting proposals have been made by the French government – the most credible of which is to direct it to feed compounders for the manufacture of livestock feed other than calf milk replacer – replacing vegetable protein, perhaps.
It has been pointed out that the product has been available all along for feed compounders to buy it, and they have either not shown interest or only at very low prices.
Perhaps parcelling up different ages of stock for disposal at differentiated prices might appeal to them and release stock while making a clear difference between it and the fresh market, which must not be disrupted.
The EU Commission will be debating a variety of methods for disposal next week, and the IFA Dairy Team will have the opportunity to make some proposals through COPA and the Citizen Dialogue Group which are also scheduled to discuss the issue early next week.
The ideal scenario would be to dispose of a sizeable chunk from intervention reasonably promptly in a manner which does not have a negative impact on the price of the very different fresh product the production of which is rising with the seasonality of milk production.
Demand is a mixed picture
EU butter and powder demand is reported to be flat. Cheese consumption is continuing to grow moderately, and liquid milk consumption is in decline.
In the US, butter consumption continues historically high, with cheddar (an important ingredient in fast food such as pizza) and powder consumption weaker.
Demand remains very strong in China in particular, where the strong growth of imports seen in 2017 continues in to the new year, especially for powder. Japanese cheese imports are also growing – from a low base. As to Korea, the positive impact of the Olympic Games seems to have waned somewhat with some weakness showing in import activity.
In the rest of South East Asia (Vietnam, Indonesia, Philippines…), powder demand appears to be recovering, with butter and cheese growing from a low base.
In the Middle East and North Africa, Algeria, Libya and Iraq have increased imports, especially from the EU, but volumes to most of the other countries is down. That said, butter exporters report that buyers are starting to find the lower prices more attractive.
In South America Mexico and Chile imports are increasing, especially in the latter case imports of cheese from Europe. Venezuela’s economic woes have cost powder imports, and Brazil dairy imports have weakened.
EU Commodity prices stabilising at lower levels than for most of 2017
It is good to see that the significant fall in prices seen from October onwards for most commodities (since July for SMP) have apparently stabilised, at least for now. A run of 3 positive GDT auctions this year so far, influenced by lower NZ milk output, have undoubtedly influenced this. The next auction is on next Tuesday 20th February, and it will be very interesting to see what this brings.