The sudden, total loss of this outlet meant that wholesale markets collapsed, farm prices reduced, A and B prices were reintroduced and some milk went uncollected.
Recent analysis by Old Mill accountants showed dairy farm profits recovered in 2020 as feed costs returned to more normal levels. Margins do remain tight for the majority, with average milk prices just about covering the average cost of production.
Quoting averages is always a dangerous approach, though, as farmers’ individual situations varying greatly depending on where and how they farm, and who they supply their milk to. Coronavirus has had a severe impact on individual businesses throughout the dairy supply chain. The processors and farmers who took the brunt of those losses will still be suffering the financial woes, and they will also be the ones looking ahead with the most trepidation.
Thankfully, wholesale markets did recover relatively quickly from that initial shock. They were more resilient than many feared, thanks to demand moving from out-of-home to in-home. The recovery in wholesale prices also flowed into farm-gate prices. The big drops in April and May were reversed for most as the year progressed.
The coronavirus impact brought concerns about stock build-up. We have looked at available supplies in the UK. That is a comparison of milk production plus imports, less exports. It gives us an idea of how much dairy is available and whether that is in line with consumption trends. What we’ve seen is that, for the period of January to July this year compared with last year, available supplies have dropped. Production of key products didn’t show any significant growth, but changes in our trade balance brought overall availability down.
The trade movement is an interesting result of the move of consumption from out-of-home to in-home. Retailers sell a higher proportion of UK-produced dairy than out-of-home sellers. So when demand switched to retail, this gave support to UK-produced product, but meant there was lower demand for imported products.
Overall, these changes helped keep the UK market relatively well balanced, and mitigated downward pressure on market prices from the loss of out-of-home demand.
Industry shows resilience, but challenges remain
On the milk production front, we’ve just had the second highest September production in 25 years. That is a remarkable turnaround from a spring where farmers were being asked to curb milk production; a time when we saw yields pulled back, cows dried off early and an increase in culling. It shows the resilience of the industry.
So what happens next? Not only do we have the disruption to markets arising from our exit from the EU, but we are also facing further uncertainties as a result of the pandemic. Let’s look at the pressures on global supply and demand.
Current forecasts show growth in global supplies of around 1%. Normally this level of growth is in line with expected growth in global demand. So, provided demand continues to grow, we are not expecting high milk volumes to push prices down.
In Great Britain, our latest forecast predicts small year-on-year increases in milk production for the remainder of the 2020/21 milk year. Nothing dramatic.
