Global dairy prices are coming under pressure from coronavirus which is affecting almost all commodity markets. The effects of this have been reflected in the latest Global Dairy Trade auctions which after posting back-to-back gains at the start of 2020 (+4.5%), have declined by 7.4% over the February auctions.
For the UK, trade with China is still small compared with domestic and EU sales. It is more likely that the EU and UK will see a knock-on effect from New Zealand being unable to ship product into China and looking for other outlets instead.
In the past week, market conditions have been changing daily as new restrictions are placed on our lives and the government works to support the economy. Organisations across the dairy industry have had to adapt rapidly to new ways of working and new challenges, almost daily. The closure of the vast majority of restaurants, pubs and coffee houses in the UK took a large chunk of demand for liquid milk away from the market, although higher demand in retail stores will have offset some of this.
There is little data available on volumes of milk going into food service. However, based on milk volumes directed to the liquid market and what is typically sold in UK retail, we can estimate weekly volumes available to the non-retail sector are around 9.6m litres. After accounting for the milk which is used in hospitals, prisons and schools, we estimate that around 8m litres of milk is sold to foodservice outlets per week.
An increase of 10% in weekly milk sales across retail outlets would be sufficient to use all the milk currently going into foodservice. While there appears to be enough demand to make use of the milk diverted away from foodservice markets, it will have serious short-term impacts on those processors who are heavily reliant on this segment of the market. Even at an industry level, there will be some logistical challenges delivering milk to some customers.
A large amount of dairy supply partners have lost between 50 and 60% of their normal weekly sales, therefore, we are expecting increases on all liquid milk and dairy products over the next few weeks.
GB milk deliveries are 0.6% up compared to the previous week. They are now running 3.4% below the same week last year which is equivalent to 1.2 million litres. The reduced footfall at grocery retailers and deliveries from foodservice companies will be increasing stock levels leading to the potential for increased food waste. This will influence milk prices in the UK and customers have been warned there will increases during 2020.
The markets have been hit by a catalogue of obstacles, pushing prices down week on week through February. The backlog in shipping pipelines arising from the coronavirus outbreak, combined with seasonally increasing milk supplies, has meant supplies are rising while demand is effectively on hold.
The markets have weakened in line with butter markets. The lack of demand from domestic butter manufacturers and from EU importers has seen prices drop quite considerably through the month. Growing supplies of milk within the EU, as UHT exports have stalled and production is up year on year, has meant there is little demand for UK sourced cream, keeping domestic availability high.
The tight availability saw the average price for mild cheddar move up. This is the first movement to the average price for over 11 months, but with little cheese being produced over the coming weeks this will see more price increases throughout the year.
The UK Bakery market total volume at present is approximately just under 4 billion units, the equivalent of almost 11 million loaves and packs sold every single day. The larger plant baking companies produce around 80% of bread sold in the UK. During the first trading period of 2020 the UK is still showing signs of double-digit growth, although there are concerns about how the coronavirus will affect the industry over the next few months.