Moves by EU foodservice and manufacturing customers to shun UK cream have already begun to knock butterfat prices in Britain.
Speaking as part of a Dairy-Tech seminar held on Tuesday (February 16), industry market analyst Chris Walkland explained many traditional customers of UK cream had been forced to buy elsewhere as a result of Brexit.
“The big question is to me will UK prices match the EU ones going forward? I’m not so sure whether they will. We have a big mismatch over cream prices because of Brexit,” he said.
Because some of the EU customer base we had before don’t want to use UK cream. Indeed, can’t use UK cream because their customers need EU origin.
“We also have the currency as well, which is going to affect milk prices potentially quite significantly, whether currency appreciates or depreciates.
“Cheddar prices are strong – I can’t see cheddar prices going anywhere other than up. Mozzarella is firming slightly so Glanbia suppliers and partners will be happy.
“But the real problem is that cream is struggling.”
Tightening margins
However, aside from cream, Walkland explained the outlook was “good to firm” for most other commodities but explaining that as a result input costs would also likely increase.
Walkland explained the impact of the Global Dairy Trade (GDT) on farm-gate prices.
“According to my calculation, the average price on the auction is the highest since mid-2018, whole milk powder is at its third-highest level since 2016, skimmed milk powder is at its highest level since 2016. So it really is riding high,” he said.
“It converts to around 30p/L… that said, the GDT hasn’t been as high as this for a fair while.”
“There are reasons to be optimistic on milk prices but plenty more reasons probably to be sober on margins,” he added.
The butterfat balance
Panellists were in agreement that with swings in which solids drive prices, balance and options were key.
Responding to a question from the floor, Rob Hutchinson, operations director for Müller Milk and Ingredients, said: “I think the cream price is important.
“Obviously, having options as to what you do with that then is key to try and get the best use where the market is paying the best price.”
Jonathan Dixon, vice-president of Arla Foods, added: “It’s about having a balanced portfolio at the end of the day.
“A lot of our cream is put into butter production at Westbury and the Anchor brand in the UK all being produced in the UK is important and softens the impact that cream directly has on our business.
It clearly plays a role, but with the dairy industry, one of the tricks to it is trying to have a balanced portfolio so you’re not too impacted when the prices are down or vice-versa when the prices are up.
“Volatility in the dairy industry is something we have learned to deal with but I guess from a customer, consumer and farmer point of view more stability in an uncertain world would be a preference.”
