Edmond Scanlon

Kerry Group chief executive Edmond Scanlon has said he is more optimistic today on the health of global dairy markets than he was at the start of 2018. In an interview with the Irish Farmers Journal, Scanlon said he feels like dairy markets are in a good balance between supply and demand at the moment.

“I am more optimistic on dairy markets now than I was back in February. I was very concerned back then where the returns for the butter/skimmed milk powder combination were going because they looked really, really poor at the start of the year,” said Scanlon.

“I was also expecting a big spring flush of milk from Europe but it didn’t materialise. Dairy prices have picked up in recent months and markets feel like they’re in an equilibrium at the moment,” he added.

Scanlon was speaking after Kerry Group revealed trading profits of €340m and sales of €3.2bn for the first six months of 2018. Scanlon said Kerry continues to outperform the market, posting volume growth of 3.6% for the period.

Kerry said it spent just over €120m on acquisitions in the first half of 2018 but Scanlon hinted at a significant pipeline of deals to come in the second half of the year.

“We typically guide to spend our annual free cashflow on acquisitions, which is about €400m. But I think this year our spend on acquisitions could be almost double that number. We have a really strong pipeline of acquisitions ahead of us, although it’s very much down to timing with these things,” said Scanlon.

Scanlon added that the taste and nutrition sector remains a fragmented marketplace but Kerry Group very much sees itself as the consolidator within the industry.

Brexit

Following the Brexit vote, Kerry Group announced a €30m mitigation plan which included a package of measures. According to Scanlon, Kerry has exited some parts of its UK business that were simply not profitable with sterling at £0.90 relative to the euro.

The company has also moved parts of its business from Europe into the UK market where it made sense, while it has stripped out costs in other businesses in order to remain competitive.

“We’ve also increased prices where we could but getting price rises is difficult because the UK consumer is not going to accept substantial food price inflation.

“At £0.90 to the euro, exporting to the UK is a tough gig for Irish companies,” said Scanlon.

Siobhan Talbot

Speaking to the Irish Farmers Journal on the announcement of Glanbia plc’s half-year results, where profits (EBITA) fell 7.3% to €123.7m, group managing director Siobhan Talbot said she believes milk price will be stable for the remainder of 2018.

“From what we see, markets are quiet just now and I would say it is steady,” said Talbot, who added that an awful lot is going to hinge on what butter does in the back end of the year.

The Glanbia chief said that even when butter was driving on in price, the weak price of skimmed milk powder (SMP) was pulling it back. Talbot said butter did come back in price in late June and July, while SMP has weakened further in recent months.

Asked where she believed global dairy markets and milk price would be in the second half of 2018, Talbot said she hoped markets would continue as they are right now.

She said even though everyone is watching the supply dynamics currently, there is a general nervousness in the market around trade disruptions such as Brexit and recent tariffs from the US.

She added that weather events are the other big factor that can come into play.

Regarding the US, Talbot said milk supplies from American dairy farms had not been negatively affected by the rising cost of feed, even though the milk to feed cost ratio is important to farmers there.

She believes the US milk tap will continue to flow, with US milk production up by 1.2% in the first half of the year. Production is expected to be up 1% for the full year. She said it is unclear what this may mean for European prices given the recent trade talks.

“We are very mindful of Mexico – it is a big valve for US dairy,” said Talbot. The Glanbia chief warned that if the Mexican market closed to US dairy exporters it could have a negative knock-on effect in dairy markets and European milk prices.

European milk flows

Closer to home, Talbot said that European milk flows have been strong and are up 1.9% to the end of May.

She concluded that Glanbia, through its joint venture Glanbia Ireland and the co-op, would do everything possible to keep milk prices as steady as they can. She acknowledged the ongoing difficulties regarding weather and fodder and said that the company was helping farmers through the extended credit scheme and advisory meetings on the ground, which she said would continue.