GLOBAL - Speculation over the potential for further price cuts brought the NFU Dairy Summit to a heated close yesterday.
Industry figure heads, Ian Potter and Jonathan Ovens revealed the possibility of a 1.5-2 pence per litre cut in the First Milk contracts due to a lack of confidence in the cheese market.
Anecdotal evidence gathered by Mr Potter, a milk quota and farm payment adviser, suggests a large segment of cheese manufacturers are currently ‘terrified of the market place’.
Short stocks mean the market is tightening but a reluctance by retailers to lift prices means that producers could yet again feel the pinch as First milk passes the costs down the supply chain.
First Milk External Relations Director, Paul Flanagan told theCattleSite that price cuts next month are unlikely: “Cuts are on the spectrum of possibility but are the last thing we want to do,” said Mr Flanagan.
A solution to the cheese supply issue appears difficult, according to DairyCo Senior Analyst Patty Clayton. In her address to the Summit she outlined worldwide production limitations.
Australia, the US and New Zealand are all feeling the effects of extreme weather conditions. Droughts have hit all three nations badly with the added problem of floods in eastern Australia.
Mrs Clayton was clear that farmgate milk prices were not helping the situation anywhere, as feed prices and poor forage quality pose a dilemma for producers trying to work with narrowing margins.
With supply problems elsewhere, the cheese stock issue cannot be resolved through imports. Ireland and New Zealand are the major cheese exporters to the UK but an Irish production drop of 12 per cent in the first three months was Mrs Clayton’s reasoning for depending on imports not being an option.
Ireland is unlikely to have butter and cheese meaning that a greater percentage of the milk going into non liquid products, around 45-50 per cent according to Mrs Clayton, needs to go into ‘higher returns fat and proteins’ to alleviate concerns in the cheese market.
In a recent statement, First Milk made it clear that times are tough but they will continue negotiating with their customers.
“The marketplace for cheddar is a problem right now. Money is tight for everyone and the cheese market is as challenging as anything I’ve seen in my entire career,” said Bill Mustoe, First Milk Vice President.
“At this stage we’ve made no decision on milk price and are continuing to speak to our retailer and foodservice customers.”