Dairy prices – divergence between butter and powders continues, but at lower levels
Since May 2016, dairy prices have first recovered – butter most spectacularly, to levels never previously reached – then weakened fairly significantly.
Since early 2018, butter prices have been firmly quite significantly, with Cheddar cheese improving more moderately, and whey powder has lifted up to €700/t. WMP has been stable, but at levels well below €3000/t.
Most worrying of all is the SMP price. SMP is crucial to the Irish product mix, and the price has been weakening non-stop since June 2017 – most recently reaching €1330/t. For reference, the intervention “reference” price, below which intervention buying-in may take place, is €1698/t – €368/t above current average market price.
Based on EU MMO data
Intervention buy-in will technically come in this month, as it is triggered by the price falling below the reference price of €1698/t – which it well and truly has. However, earlier this year, the EU Commission obtained the Agriculture Council’s agreement to remove the legal obligation to buy up to 109,000t at the minimum price of €1698/t. Concretely, this means the EU Commission may choose not to buy any SMP at all – by simply drawing the line at €0. As doing anything different would in effect increase the stock beyond the 377,175t still in intervention warehouses, it is easy to understand why the Commission would abstain. The Commission’s strong message of recent months – especially expressed by Commissioner Phil Hogan – has been that the EU dairy industry need not produce SMP willy-nilly and expect it to be taken in by the EU. It seems the industry has been paying some heed, as there was 2.6% less SMP produced in 2017 compared to 2016.
The EU Commission has by now sold out 6,121 tonnes of SMP out of intervention since December 2016 – out of a total product made available of around 100,000t (product sold into intervention pre-April 2016, so coming on to 2 years old and older). There is around 95,000t left over for tender this month – it has not yet been adjudicated as we write. The previous tender, adjudicated on 20th February, set the price at €1190/t – a very substantial discount even on current weak fresh product prices.