UK Supply and Demand

Having struggled to push above last year’s reduced levels earlier in the year, milk deliveries have performed better since then and were close to their level in the record 2015-16 season during the autumn. Nevertheless, with slightly fewer cows in the herd and issues with forage availability and quality, supplies for the full season are likely to remain below their level in 2015-16. Even with improved milk prices, farmers will be rationing any supplementary feeding, given the uncertain outlook.

Figures from Defra show that the number of dairy cows in the UK was down 0.3% in the year to June. There were also fewer dairy heifers than a year before, suggesting that any recovery will take time. Furthermore, the number of dairy calves registered this year has been consistently lower than the year before, affecting the longer-term outlook. That is partly because of greater use of beef genetics last year as farmers sought to recoup some of their losses by increasing the value of their calves.

Despite the high price of butter, there appears to have been little response from farmers in terms of the butterfat content of milk. The percentage of butterfat has been slightly higher since the summer than in the same period last year but the movement is only small and fat content dropped below year earlier levels towards the end of the year.

In the second half of the year, UK milk production was up 7%, compared with the same period last year, taking total production growth for the year to 4%. With demand for liquid milk rising more slowly, more milk was used to manufacture other dairy products. There were big increases in production of all the main processed dairy products, typically of around 7-9%, although powder production was over 30% higher than in the same period of 2016.

Official figures show a sharp increase in dairy imports and exports this year, up to October, but this appears to be largely due to a substantial rise in movements of fresh milk between the UK and Ireland (presumably mainly to and from Northern Ireland). Once this is taken out of the equation, the quantity of dairy products traded has been relatively stable overall, although with some changes in the mix of products involved. However, with prices higher (and the pound weaker), the values of both imports and exports have been significantly higher this year.