Friday, 3 April 2020
By Patty Clayton
Wholesale markets have weakened significantly in the past week, with supplies far outstripping demand. The forced closure of foodservice outlets had the effect of eliminating a large market for dairy products, leaving many processors with severely reduced outlets for their product. Markets are still adjusting to the current situation, creating widely diverging trends week on week.
In the immediate aftermath of foodservice outlets closing, the spike in retail demand helped to soak up some of the excess milk supplies. As such, some of the ‘homeless’ milk volumes could find buyers although at reduced prices.
In the past week however, liquid processors have reported a drop off in retail demand. The three main reasons for this drop off are:
- shoppers are making fewer trips to supermarkets
- consumers are using up purchases made in previous weeks
- limits on purchases in retailers.
Lower ingredients demand from businesses supplying into fast food outlets, biscuit manufacturers, and chilled convenience foods for example, has also increased the amount of milk without an end destination. Those manufacturers suppling into these markets will therefore have had excess milk supplies. While some of this milk will continue to be processed into storable products, there is a reluctance by manufacturers to build stocks when there are currently limited buyers and no certainty on when some markets will reopen.
Despite powder plants working at full capacity, the increase in volumes overwhelmed spot markets during the week. Spot milk prices were reported to have fallen from 20ppl to 15ppl by the end of the week. Bulk cream prices were also hit, dropping by 10%-20% from last week according to industry quotes.
For pressure on spot markets to ease, homes will need to be found for milk, whether that is through higher retail sales as retailers relax buying quotas, or increased production of storable products. It remains to be seen how long it will take for retail sales to settle into more predictable patterns, and for dairy supply chains to adjust to the new market landscape. During this adjustment process however, we could continue to see large swings in spot market prices.
Visit the UK wholesale price page for historic dairy product prices
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