Thursday, 9 April 2020
By Patty Clayton
This week has seen spot markets under further pressure as increasing amounts of milk became available.
Average daily deliveries at this time of year run at around 35m litres per day, and increase by around 0.1% per day into the flush (equiv to an extra tanker of milk each day between now and the flush) This will be adding to the roughly 1.0-1.5m litres of ‘homeless’ milk which would typically be distributed to foodservice or manufacturers each week.
Typically, the industry would be able to balance the market by producing storable products which are then sold later in the year when production is lower. Currently however, sales by liquid milk processors servicing foodservice or wholesale markets are reported to have dropped by 50-60%. This milk will be either going into dryers or onto spot markets. However, the market for spot milk has become saturated and devoid of buyers. Spot milk prices are reported to have dropped to 7-8ppl, with the value determined only by the fat content. Bulk cream prices were quoted at between 0.80/kg – 0.95/kg through the week, but declining daily.
The difficulties in the market are the result of two main factors: the imbalance in supply and demand and the absence of any spare drying capacity.
So while bulk cream retains some marginal value, the skimmed concentrate has none. It is the inability to process this into powder, or use in the manufacture of fresh dairy products, that has led to the need to dispose of it.
The situation in the manufacturing side of the market is less critical, although remains under pressure. Both packet butter and cheese processors are reporting strong retail orders, although not as high as during the spike. Rough estimates are that retail demand for these products is settling at around 5% above normal for this time of year.
So while some processors may have the ability to continue to use or re-purpose their milk to make storable products, their inclination to do so will depend on all of the following:
- Access to markets (less impacted if retail or possibly food manufacture but key issue for food service or ingredient manufacture)
- Sufficient storage capacity
- Sufficient cashflow and ability to carry cost
- Confidence that their customers will be able to pay, or have sufficient credit cover
- Sufficient access to labour and processing capacity given new social distancing measures in production facilities
Unfortunately with retail sales settling down, no end in sight for a relaxation of lockdown measures and milk production continuing to increase, the market situation faces significant challenges in the coming weeks.
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