Quotes for feed grade SMP have also been improving over the same period (see graph below). It is fair to assume that the sales out of intervention cater mostly to this market. And the minimum price reached in the December sale was very much on par with the type of prices currently being paid for the fresh product.
5 – Demand somewhat flat currently but looking to improve in New Year
Demand growth had been assessed at around +1.5% earlier this year. Lower oil prices, trade tariff disputes and weaker economic growth in many regions has flattened it a little in the last quarter of the year.
However, Chinese demand has increased in the earlier part of 2018, and is expected to increase in 2019 also.
Rabobank predict that, in 2019, Chinese demand will increase in double digits. The cost of production is rising in China, with feed costs on the up partly as a result of the tariff/trade war with the US. Chinese economic growth is however somewhat uncertain and this will impact demand for additional imports. Even allowing for this, however, Rabobank predicts an increase in Chinese dairy consumption for 2019 of 1.5% year on year.
In South East Asia, powder demand (including casein) has increased after a poor start to the year. Butter and cheese imports have also increased, though from low levels.
Rabobank predict that the relative global production squeeze is set to continue into 2019, and bearing in mind relatively low levels of privately held stock – also fast shrinking SMP intervention inventories – and continued steady demand, they say there is a real risk that buyers may get caught out with the market “moving quickly upwards and catching them unawares” in the first half of the New Year.
6 – Not all rosy: Brexit, oil prices, international tariff wars
As 2018 comes to a close, there are some headwinds.
Brexit Day, 29th March 2019, is just over 100 days away, and the British, Irish Governments and the EU are now openly talking about preparing for the UK crashing out without a deal (a Hard Brexit).
It is worth reminding ourselves of a few dairy facts when it comes to our trade with the UK.
The UK imports 476,533 tonnes of all manners of dairy products from Ireland, but most of all cheese (138,000t) including a majority of Cheddar, and butter (49,000t).
They also export around 936,520 tonnes of dairy products to Ireland – this is mostly raw liquid milk from Northern Ireland which is being processed in the ROI.
So, firstly, the value of the UK imports from Ireland exceed its exports in value terms; and secondly, there may not be sufficient capacity within the UK to process the NI milk which is currently being processed in the ROI.
Hence, to quote the CLAL presentation from which the graph right and the information above is sourced, “Aside from political considerations, market equilibrium calls for the existence of a free trade agreement between the UK and the EU in order to limit the effect of Brexit on the constituents of the supply chain”.