AHDB reports on first quarter for UK, global supplies

In contrast to tightening milk supplies in the EU as a whole, UK milk production has been hitting 20-year highs every month so far this year, according to the UK Agricultural and Horticultural Development Board (AHDB). Yields were upped by higher use of purchased feed, a mild start to the year and increased calvings. For the first quarter of the year, cumulative production is 3.4% higher than last year. However, the lack of grazing curtailed milk production through most of the 2018/19 milk year (Apr-Mar) leaving the overall rise in annual production at 1.1%.

Combined with higher than normal imports of dairy products in the first quarter of 2019, which was a reaction to the threat of import tariffs, the higher production levels have put pressure on storage space.

Across the EU28, poor quality forage and a reduced dairy herd limited total milk deliveries. The knock-on effect on product availability helped to support prices on wholesale markets, in turn supporting prices paid to farmers. While the UK has not experienced the same tightness in product availability, the inter-dependency of the UK and EU markets for dairy products has helped insulate prices on UK markets.

On average in the 2018/19 milk year, prices paid to farmers remained in the region of 29ppl, slightly above the 5-year average of 27.5ppl, AHDB reports. Recent trends in wholesale markets have been downward, which has led to some cuts in farmgate prices in the first part of the year. The current high level of milk deliveries in the UK is said to be leading to capacity issues for some dairy processors, causing some short-term balancing issues and potential longer-term storage issues. Overall, the increase in production may put pressure on processor returns, in turn affecting milk prices.

Globally, milk production is expected to remain tight through 2019. High input costs and low farmgate prices have squeezed margins in Australia, the EU and the US, leading to reduced collections.

Product availability in the EU is estimated to be generally low, with the exception of butter. However, competitive pricing for EU products is driving good export performance, while the reduced milk production has limited any excess stock build-up.

China’s import demand is expected to remain strong through 2019. With demand for alternative protein sources arising from the ASF epidemic, there may be a price incentive to redirect dairy cows to the beef market, reducing milk supplies.

Overall, commodity prices are expected to remain strong at a global level.

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