Chris McCullough
Dairy processors in the United Kingdom are working flat out to ensure the flow of food to retail outlet shelves is uninterrupted during the recent surge in demand for the basic foods caused by the coronavirus pandemic.
Normal consumer behavioural trends have all gone off the scale as more people stockpile supplies and buy more perishable foods such as milk, cheese, bread and eggs more frequently.
The recent government advice to stay at home and avoid public places is diverting foodservice and on-the-go consumption back into the home, pushing up retail purchases.
It is reported that this is already happening with a surge in retail purchases of liquid milk and minced beef for example, and a drop-off in the use of coffee shops and restaurants.
Processors supplying retail markets are already witnessing an uplift in demand and are sourcing extra supplies to ensure they can continue to operate and have no logistical issues with getting product to stores.
They are also offering temporary employment to those people who have lost their jobs in a bid to keep up with demand and ensure produce gets delivered.
However, the processors know they need to be careful and prepare for the drop in demand when the virus passes through to ensure they are not left with produce they cannot sell.
Food service accounts for 10 to 15% of the UK’s liquid milk sector, which in turn represents about 50% of UK milk consumption.
“The food service sector is struggling big time and it’s getting worse every day,” Chris Gooderham, AHDB Dairy head of markets specialist, said.
“However, while cafes and restaurants were suffering a huge fall in demand, hospitals and schools, which account for a big element of food service milk use, were still operating.
“It’s more the impact on individual processors. Cash flow will be a big issue for them,” Gooderham said. “It will be fairly rocky for certain processors.”
There would also be knock-on effects for the spot market, as food service demands change and spot volumes fluctuate.
There has been much recent speculation about the track of spot milk prices, which have fluctuated between 31p/litre and 25p/litre in the past couple of weeks.
“It’s difficult to tell if the downturn in spot prices is due to concerns on Covid19 or just the fact milk production has started to pick up after being flat from the turn of the year.
“We would normally expect spot prices to reduce in March, as we start the run-up to the spring peak,” Gooderham added.
Meanwhile across Europe, following months of relative price stability, settled values on European Union dairy futures have shifted down as the impact of the virus continued to be felt across the industry.
According to AHDB, settled values on futures contracts provide a good indicator of how market participants expect prices to move, based on current conditions.
The latest drops will reflect the concerns over the impacts of lower demand and rising product availability on dairy product prices.
The forward milk price equivalent (FMPE) value combines settled prices for butter and SMP futures contracts on the EEX exchange. Between October 2019 and February 2020, the FMPE remained in the region of €35 to €39 per 100kg for contracts expiring April through August.
As Covid-19 spread across Europe however, market sentiment shifted, and settled prices fell. In early March, before governments starting restricting social mobility, FMPE fell about 11% to about €34/100kg.
More recently, there was a further drop, with FMPE falling to around €30/100kg for contracts with April through June expiry dates.
BREXIT TRADE TALKS
Although Covid-19 has overshadowed most thoughts about Brexit British Prime Minister Boris Johnston has said he is still forging ahead with plans to draw up an exit trade deal with the EU.
However, the latest talks set up to debate the deal have been put on hold given the fast moving severity of the pandemic and the fact that the European Commission’s chief negotiator, Michel Barnier, revealed he had tested positive for the virus.
