UK wholesale dairy markets coming under pressure

According to DairyCo, February saw UK supply outstripping demand for fresh products such as cream, butter and curd cheese resulting in significant drops in wholesale prices for these products.

Export demand for powders continues to support this market, although the strengthening of the £-€ exchange rate has put some downward pressure on prices.

Cream prices fell sharply in the first part of February to levels just below £1,300/tonne (€1,600) as healthy supplies outstripped demand.  With low demand in the market, suppliers diverted fat into butter production.  The removal of some supplies and increased trading in the following weeks allowed the market to stabilise and prices to recover above the £1,300/tonne mark.  On average, cream prices fell by £170/tonne (€210) (11%) over the month, bringing them to their lowest level since February 2013.

Butter markets followed a similar pattern as cream in February although they saw a larger drop on average over the month.  Compared to last month, butter prices are down by 13%.   The supply situation was the key driver in putting downward pressure on prices through the first half of the month although low demand also contributed to prices falling sharply over this period.  Buyers returned to the market looking to secure forward supplies in the middle of the month once prices dropped to world price levels which stabilised prices.  With Private Storage Aid not expected to operate this year it will be harder for traders to judge the market with regards to the supply situation later in the year. This potentially could be adding a further level of cautiousness from traders, perhaps pushing them to cover further ahead than would normally be the case at this time of year.

Prices for Skimmed Milk Powder (SMP) continue to be supported by strong export demand, although there was a small drop of one per cent in the average price. While supplies are reported to be healthy, UK prices remain globally competitive keeping export markets open. The stronger exchange rate has been the key factor in the marginal decline in powder prices.

In cheese markets, most price movements have occurred in fresh cheese (curd) markets, which is facing pressure from ample supplies.  This is starting to filter through to the mild Cheddar prices as more stocks enter the market.  Prices are reported to have dropped marginally for mild Cheddar compared to the previous month with no change for mature Cheddar.

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