Newsletter Archive:
| Understanding The Markets |
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Over the last month, there has been considerable comment and speculation about where milk prices are going. Our director of operations, Mark McQuade, gives his perspective on the current situation. General Despite the unprecedented price rises in 2007, this has not flowed through into a noticeable difference in milk volumes, which remain tight. The costs of production rises are undoubtedly having a major impact here. Milk buyers are rightly concerned about the damaging effect that a lowering of milk prices would have on producer confidence. As we did in 2007, we continue to highlight on-farm cost of production increases and push the market for further increases in all sectors in which we operate. We have commissioned Promar International to do a report on farm input costs and we should have this report in the next few weeks. We hope that this will be useful in presenting our case. Liquid sector While there has been a suggestion by some milk buyers that liquid prices need to come back due to the reduction in bulk cream prices, these prices have started to rise again since the turn of the year. Each of the three large liquid processors will be keen to defend their producer base in the face of tight milk supplies and this will have an impact on the price they need to pay. Cheese sector In 2007, cheese manufacturers lifted their prices to at least the level paid by liquid processors. There are currently three factors that point to the fact that cheese prices should remain stable at the very least. Firstly, UK cheese stocks are at a record low with many cheese processors only making to order. Secondly, the Southern Hemisphere is now past peak production with minimum levels of stock being carried. Thirdly, while there is a threat of EU imports, particularly from Ireland, the strength of the Euro compared to Sterling makes it more difficult for cheese to come into the UK cheaply. Ingredients sector The Ingredients sector that led the market for much of 2007, saw some price drops towards the end of the year due to oversupply and some food companies finding cheaper substitutes. However, stocks of dairy ingredients are currently reasonably tight and we can now see a recovery in skimmed milk powder, butter and cream prices that is expected to continue in 2008. The continued low value of Sterling is providing some protection against imports, and making exporters like our Ingredients division more competitive. |