With all the market signals pointing towards higher dairy commodity prices over the last six weeks and coming months, speakers at the Dairy Newsletter conference in London confirmed much of the positivity.

One of the key drivers of the optimism was the fact that just over 40,000t of skim milk powder (SMP) was sold out of intervention in just one tender event.

Speaking at the conference, Brigette Misonne, head of livestock with the European Commission, said: “At the start of the year there was over 400,000t of Skim Milk Powder (SMP) in storage and now this is edging closer to 300,000t. While still a lot of powder, the fact so much was sold at the last auction is very positive. We are considering creating another tender event in August to meet the demand from the market while the market impetus is there if we can establish regulations before then.” Brigette explained how the tendering for intervention product works. “Every month where we have a tender we outline the stocks available, the bids come in and we open up and check the member state bids with no preconceived ideas and a decision is taken. We look at what the market needs, who wants what and decide on that basis. For many months we refuse all the bids as it is not good for the market and we make very rational and cautious decisions conscious of what it is to be the owner of 300,000t of powder.”

Oil price ripple pushing into dairy

US speaker Phil Plourd from Bliming was also very positive on the US story and where he sees dairy commodities going. He said there are a number of factors at play. “Crude oil is up, globally economic times are pretty good, US money is leaving equities into commodities, so basic trends for butter, cheese and non-fat dry milk are positive, US April volumes are back and inventories of dairy product are all gone. So, in summary, supply growth will slow to 1% this year and demand for cheese and butter is up 2%, so it means the market will be firm and I don’t expect global surpluses this year.” While the disconnection between fat and protein prices continues, there seems to be nothing halting butter prices. Now other products are also registering price increases and the lowest-priced product (SMP) is also now increasing.

Dale Farm boss aiming for top on milk price

Nick Whelan, chief executive of Dale Farm Co-op, is aiming to pay the top milk price to his co-operative suppliers in coming years. Speaking at the Dairy Industry Conference in London, Nick said: “Dale Farm has not performed well enough at all over the last number of years when you measure our performance on milk payment to our farmers. However, in 2017 we finished second in the ADHB milk league and over the last five months of 2018 I estimate we have been paying the top price. We are going to be a co-op that looks after it’s farmers, makes consistent profitable growth and makes good operating profits.”

Brexit uncertainty remains

Glanbia Cheese boss Paul Vernon was also speaking in London. He suggested the UK is leaving the EU in 10 months and nobody is any the wiser. He said: “We are no better off than we were two years ago. We have asked for answers from the government but they are not coming. Companies will sell of course but we need to know the trading conditions and need clarity on it now.”

Yoghurt boom in Asia

Nese Erbil from Olam International advises dairy traders and completes research and forecasting looking at risk management strategies. Olam has a turnover of $15bn with investments in New Zealand, Uruguay, Russia, Malaysia, and Nigeria. In each they have milk production or processing investments. Nese described the strong economic growth in Asia and the increasing consumption of dairy products. She said better education, food safety scandals and obesity issues mean Asian consumers don’t mind paying more for a natural product such as milk. She said yoghurt and drinking milk are the growth stars, with cheese the next growing product as Asians eat more pizza.

Farmers taking control of branding

Bruce Turner from Fonterra in New Zealand said the barriers of entry into business have never been lower and similar forces are at play in the dairy processing sector directly and indirectly. He said: “Products can be replicated and replicated quickly ... there is rapid commoditisation of products.” Bruce also said the economies of scale for large driers is getting less and less as robotics are taking over. He said another trend in New Zealand is that larger farmers are trying to take control of their own destiny: “These groups want to differentiate their brand and their own product and it’s harder for the co-op to serve these farmers and in future there will be more alignment between capital and large groups. Branding captures a large part of the value chain and if large farming groups say they want part of that then that’s their call.”

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