Dairy Market Trends September 2020 Executive summary

In June 2020, retail sales quantities of seven of the nine dairy products being measured by Nielson were between 6 and 18 per cent higher than in June 2019, while retail sales quantities of the other two dairy products were between 9 and 12 per cent lower. The major milk consuming categories cheese, butter, and UHT milk is doing extremely well, despite consumer disposable income that is under pressure. It seems that the dairy component in the consumer basket is getting stronger and more solidified. Good marketing efforts by all the role players in the value chain should be recognised as contributing to this trend.

Dairy retail sales are doing exceptionally well, given the many negative factors at play in the South African economy and the financial position of consumers. The level of price increases in dairy retail, on the back of ongoing firm demand for most dairy products, is indicative of a success story of note. However, in this success story dairy farmers have been neglected to the frustration of the Milk Producers’ Organisation. This neglect started at the beginning of 2018 and created havoc on dairy farms. Production planning, sosio-economic targets, and financial stability at farm level suffered and is still suffering due to imbalances in the value chain leading to unprofitable low milk prices.

After improving marginally, the milk:feed price ratio, in July and August, is on the back foot again due to higher grain prices and lower producer prices. The ratio did not reach the level where sufficient returns for the primary industry was possible and is again at a level now where dairy farmers will leave the industry and only operate in survival mode.

Some positive producer price movement were picked up in September, which will be included in the next report.

Unprocessed milk production for August 2020 is estimated at 289 million litres, 1,46% less than in August 2019. Milk production in August 2020 is indicative of the negative farm economics that have been plaguing the primary sector. Market signals from the MPO, since early 2018, indicated that the cost–price squeeze is severe in farm economics, due to too low producer prices and high cost increases. Furthermore, some important milk production areas are still relatively dry with low dam levels. The duration of the improved producer price (increases in March and April 2020), was too short with prices being reduced in July and August. The improved producer price, in any event did not reach the price level where farm economics enabled higher unprocessed milk production. The MPO sounded a warning in the May 2020 publication of this journal, stating that positive farm economics “would only be possible if the upward trend in producer prices prevail”.

Cumulative unprocessed milk production for the first eight months of 2020 (inclusive of August and including February only as a 28 day month) was 2 035 million litres indicating a decline of 1,1% in comparison to the same period in 2019.