Food manufacturers keen to take advantage of low global dairy prices should act quickly and buy now, as changes to the EC’s dairy intervention scheme could see prices recover faster than expected.
Dairy commodity trader Greenfields Ingredients says although farmgate prices are very low right now and the received wisdom is they will remain so for the forseeable future, a proposed increase announced last month to the EC intervention scheme’s “quantity ceilings” for butter and skimmed milk powder means farmgate prices are unlikely to stay at current levels for much longer.
Under the scheme, the EC buys the commodities from processors and stores them until markets become less volatile. It has just proposed increasing the amount of skimmed milk storage from 109,000 to 218,000 tonnes, with butter rising from 60,000 to 100,000 tonnes.
Removing such large quantities of product from the market means suppliers should consider hedging against potential price rises now, says Greenfields MD Ian Thomas.
“Prices have hit the floor, but as soon as a market balance is achieved through the intervention scheme, prices will almost certainly start rising again,” he claims, adding that futures prices for July are already tracking upwards as a result of the scheme’s expansion.
“For companies in the bakery, confectionery and ready meals categories, who often use large volumes of dairy ingredients, this is an opportunity that’s simply too good to miss,” Thomas adds.
This week’s Fonterra GDT auction saw the total price index rise 2.1%. However, butter remained sluggish, down 2% to $2,702/tonne, and has been on a downward trajectory since 5 January. SMP prices fell 0.1% to $1,721, having fallen steadily from $2,267/tonne on 6 October.