Research by Louis Dreyfus, one of the world’s largest commodity trading companies, which was presented at an FCStone conference in Dublin this week, suggests that private (commercial) stocks around the world are being consumed and tightening, and expect a pickup in demand.
Price recovery will take time to translate back into improved milk prices however, as EU commodity quotes had fallen by 40% (butter) to 50% (SMP) since their 2014 peaks.
Also, many have commented that co-ops had supported milk prices, especially over the last year or so, and this would also affect the timing of likely farmgate milk price improvements.
It would be good, however, for farmers to be able to think that milk price cuts are now a thing of the past. Didn’t Friesland Campina just announce they would hold their June milk price, and in a welcome bold move, announce they would increase the sales price of their cheeses as dairy commodity prices are currently loss making for both processor and farmer.
See more on this here: https://www.frieslandcampina.com/en/news/frieslandcampina-raises-sales-prices-cheese/
EU output slowing down into April
Bad weather has affected grass and fodder growth in the regions of NW Europe producing milk off grass, and this has relatively reduced output in those areas. Current floods in the UK, Germany and France will also probably affect fodder production.
Negative margins have hit farmers in all EU member states, and further afield (see report on Australia’s milk prices in my previous blog).
When comparing output in some parts of Europe for April, however, we need to remember that the April 2015 figures with which they are being compared were skewed by a significant amount of milk being carried over from the last month of the quota regime to minimise superlevy bills.
For the moment, those trends are not yet apparent from EU MMO data, which tends to be about 2 months behind on EU milk production. So, it may not have been fully factored in by all operators.
That said, higher cow culls in Germany and France, and significant production reductions in the UK in particular suggest that a slowdown in production is on the cards for quarter 3 and 4.
Speaking at an FCStone conference held in Dublin this week, a representative of Louis Dreyfus predicted output may even fall back, by as much as 1.6% over the second half of the year.
Another important consideration is that Oceania is now at its trough time, while Europe is just past peak. There is some evidence that buyers’ uncertainty about availability of supplies for the third quarter is also playing a part in helping to firm prices a little.
Prices picking up
The last two GDT auctions saw a by now well established pattern of much reduced quantities offered and sold compared to the previous year – bearing in mind that those were lower than prior also. Despite this, we cannot ignore that the signals sent by GDT are watched by all operators, buyers, sellers, analysts and commentators alike, whether or not they are actually involved in the auction.
So, the second May auction and the first June auction have seen a real pick up in prices, with an especially welcome double digit increase for SMP in the last auction. WMP prices were among the few to fall by 1.7% this time – reflecting the doubling of tonnage to approx 11,000t relative to the previous auction.