Film aficionados among you may well have watched the Sean Connery film Hunt for Red October. If you haven’t seen it, it’s about a submarine. And there’s a scene in it that reminds me very much of the dairy markets in recent weeks. Yes, really!
Said submarine has to go from A to B, but there’s danger (i.e mines) all around. One false move or a bit of bad luck and well… kaboom. Happily, though, it navigates through the danger zone and everyone lives happily ever after.
The dairy markets have been navigating their own mine field too, in recent weeks. There has been lockdown 2.0 for starters, and the loss of some food service markets again. There has also been the emptying of EU Private Storage for SMP, butter and cheese. (Those with long memories will remember the EU paid the storage fees for companies to store these products for a limited time to take them off the market in the first lockdown. But that storage time period is running out now.)
Then there is increasing milk volumes in the UK, EU, the US and New Zealand, at a time of falling demand. Not good! And if all of that wasn’t enough there’s Brexit uncertainty too. Massive Brexit uncertainty. (More of that later.) Plus currency fluctuations, falling EU SMP exports (the EU must keep product moving out of the EU to bolster prices), massive political bailout dollars in the US distorting the global market, and buyers adopting hand to mouth buying strategies. No one, but no one, is prepared to go long, and buy big volumes. Why would they?
And yet despite all of these factors the really good news is that the market, like that submarine, has successfully navigated this fiscal minefield. So far!
Yes, cream did fall from the high £1.50’s down to as low as £1.30/kg. But it’s now back-up to £1.40/kg at the time of writing. It really needs to be in the mid £1.50’s to lend support to current liquid milk prices. Butter has remained relatively stable too. The price certainly could have been a lot worse given those PSA stocks and other factors. Spot milk has also remained slightly above the farmgate price at around 30p. Again, that could have been worse. And cheese prices have remained very firm – in fact medium and mature prices have firmed in recent weeks. All in all then if cream can continue clawing its way back to where it was I think farmgate liquid milk contract prices should hold. Cheese prices definitely should, if not increase fractionally for some processors who are behind the curve. (Mostly those in the north, though).
But then will come Brexit. Oh my. There is still no clarity at the time of writing. Just more uncertainty.
Now some of you will think Brexit will increase your milk prices, but I’m not so sure. Currently British contracts on the continent are being cancelled as EU buyers simply won’t accept GB products in theirs as they can’t then put “Product of the EU” on theirs. Trade from GB to Northern Ireland is also being affected too: there are too many added costs and hassles.
In addition, even if the EU mark doesn’t matter to buyers there, no one in the UK wants to export any fresh milk products over the New Year period or for a while afterwards in case they get stuck at the ports. Quite what effect this will have on the market I don’t know. But it’s hard to see the likes of skim concentrate having much of a value other than in digestors.
In my experience – and generally speaking, of course – turbulence and uncertainty do two things: they lead to lower milk prices, as that’s a good way for milk processors to de-risk their businesses, and it leads to higher costs too, as that’s a good way for suppliers to de-risk their businesses. Either way it’s a lose-lose for farmers. Turbulence and uncertainty also affects sterling, and import costs.
If milk price increases do increase on the back of Brexit, it won’t be for a while. Or much, I doubt.
Don’t bank on them, therefore!