Weather factor: where will the price of milk go
Temperature above 30 degrees on the one hand and heavy rains on the other can form a new forecast balance of the dairy market for the rest of the year.
Forages
The heat corrects the grain harvest across the country. In the field of animal husbandry, the use of wheat in the current season varies at the level of 18-19 million tons. In this area, serious drawdown is expected – reported previously Dmitry Rylko, General Director of the Institute of agricultural market conditions, to Agroinvestor. He added that the Institute has already reduced the forecast of gross wheat harvest from 79.5 million tons to 78 million tons; the adjustment was due to the heat in some regions of the Volga region and low indicators in the South of the country. However, the Russian Grain Union cautiously states that in the Center and the Volga region, the gross grain harvest will be higher than in 2019, and it will be able to somewhat compensate for the fall in yields in the southern regions.
This affected the export. According to the analytical center “SovEcon”, due to the low grain yield in the South and Siberia, the harvest had to be shifted in time, and even the most optimistic forecast for exports does not exceed the indicators recorded over the past three years. Grain exports in July will not exceed 3 million tons, the reason - the heat burned the crops. For example, only in Krasnodar region, the decline in indicators was almost 25%.
Market participants are on the verge of losses, and the postponement of the start of the new grain season has already led to an increase in the cost of wheat on the domestic market. According to Head of the analytical center "Rusagrotrans" Igor Pavensky, EXW offer prices for wheat of the 4th class in mid-July were 12.1-12.3 thousand rubles/t, SovEcon predicted continued price growth in the South.
What about animal husbandry?
High temperatures can have an extremely negative economic effect in the dairy farming industry. Earlier, The DairyNews published a review describing the possible negative consequences of heat and drought. According to DeLaval, feed can make up 40-60% of the production cost on the farm. An obvious factor in the impact of drought and heat is a decrease in both the quality and quantity of feed – the cost of own and purchased feed increases, the feed consumption by animals decreases, which can lead to a reduction in yields (up to 40%). The increase in feed costs per 1 liter of milk produced will affect the cost of raw milk, and it will not be immediately possible to win back this increase in the selling price, say experts interviewed by The DairyNews.
The DairyNews contacted a number of representatives of the dairy market and found out how much the weather has corrected the situation with the production and turnover of milk, as well as with the pricing policy in the Russian dairy market. What is expected in the industry?
However, the impact of heat on the price of raw milk has still to be assessed. Experts of the dairy market give different estimates of weather anomalies. Mikhail Mishchenko, General Director of the Dairy Intelligence Agency, noted that the temperature has no influence on the dynamics of milk prices. According to the expert, the price has a downward trend, but the factors for this are completely different:
"Today, the price of raw milk is primarily affected by the exchange rate. It is obvious that in the domestic market, participants are trying to reduce the price by all means, and it is gradually going down. The falling ruble is a kind of buffer in the dairy market, supporting the price, which gives hope that farmers will not suffer much. The price will not fall much, but there is an objective downward trend".
The expert also added that it does not make sense to predict the exact price on the dairy market now - everything depends on the future situation. The heat may affect the price of feed in the future, and, according to the expert, the rise in price can be expected by the market in the autumn-winter period.
Artem Belov, CEO of Soyuzmoloko, noted that the forecast balance of the Russian dairy market for 2020 will be reviewed and one of the factors will be weather conditions.
"The price situation on the Russian raw material market during the "big milk" season was balanced by two factors: an unexpected explosive growth in exports of Belarusian powdered dairy products to the Southeast Asian countries / China in June, as well as abnormal heat in a number of dairy regions in July", The DairyNews quotes Artem Belov. Abnormal droughts in Tatarstan, Bashkiria, and several regions of Siberia, according to the expert, will lead to a drop in production due to the drought.
Leonid Bessmertnykh, Director of marketing and product management at DeLaval, expressed the opinion that the cost of milk will increase by the end of the year for reasons unrelated to the heat. The growth, according to the expert, will be about 10-12%.
"To show a large-scale effect (at the country level), 100% of the regions had to suffer and there was a catastrophic situation with exchange-traded commodities (inventory volume and prices). Fortunately, this is not the case. The cost of milk will increase by the end of the year, but for reasons unrelated to the heat. The growth will be 10-12%. In a number of regions affected by high temperatures, this increase may exceed ~15-20% (due to the increase in the cost of feed and a reduction in yields), - said Leonid Bessmertnykh.
Ruslan Sultanov, technical Director of the company “Matrix Universal”, also suggested that this year the increase in milk prices will not affect the final consumer - the factories will try to keep and regulate the price.
"There is a reduction in milk yields and a problem with feed, but it will not make itself felt quite sharply. If this problem persists next year, the price of milk will increase. I believe that this year these problems will not affect the final consumer, as the factories will try to restrain and regulate the price".
Many representatives of the dairy market point out that the heat has had a strong impact on milk production on farms. Olga Abramova, Minister of agriculture and food of the Udmurt Republic, in an interview with the correspondent of The DairyNews, noted that since the beginning of July, farms in the region have faced the terrible consequences of the heat - the yield per cow for two weeks has decreased by more than 2 liters and amounted to slightly more than 17 liters per head. In recent days, the decline has been somewhat compensated - and in the future, the expert expects a full recovery in milk production.
"Animal husbandry in the region has got into an extremely difficult situation. Since July 8, a very hot two weeks began, the temperature rose above 30 degrees, and not all enterprises were ready for this. By July 8, milk production per head averaged about 20.6 liters. Because of the weather, milk production has fallen to 17 liters per head. After that, we managed to compensate for the drop to 18.6 liters per head. In terms of the entire Republic, we lost one and a half million rubles a day".
Only this week, according to the Minister, the weather has stabilized and the heat wave has gone.
"This period will be a lesson for us – we need to deal with ventilation, pay attention to the climate in livestock premises not only when it is hot. But I predict that we will return to our previous position on milk production", added Olga Abramova.
As for the price of milk, the Minister noted that the price does not fall as sharply as it did before. The price of milk in the region can be kept at a stable level – 23.7-23.9 rubles per liter of milk.
"In accordance with our plans, the Republic should increase milk production by another 400-500 tons per year by 2022, so we must balance this market so that the produced milk is processed in the region".
Dmitry Matveev, General Director of GC Kabosh, believes that the weather directly affects the volume of milk received – in hot weather, cows start to eat less, and if the farm does not comply with the sanitary regime, they are attacked by insects, which also leaves no doubt about the drop in milk yield.
"This can be overcome by certain investments – their number depends on the specific region and the frequency of hot weather. I can say that in a day you can lose from one to 5 liters of milk per cow.
We are aware of these problems and during this period we try to monitor carefully the access of cows to water, encourage cows for milking", Dmitry Matveev said.
The expert also added that today the weather in Pskov region is quite rainy and cold. The price of raw milk is stable, it is not planned to reduce or increase it.
Anatoly Nikiforov, Head of the Agricultural production cooperative "Kilachevsky" in Sverdlovsk region, notes that today the region has been hit by a drought. The temperature is at the level of 24-25 degrees, within two weeks the milk yield has decreased by 13-14 tons of milk per day.
"Now the most important thing is that people have money to buy milk. It is obvious that the purchase price should be increased, it is still held at the level of 2017. Now the price is about 23.5-23.9 rubles per liter", said Anatoly Nikiforov.
Therefore, according to experts, in the end, high temperature will not have an instant impact on the price of raw milk. It will be rather in a combination of many factors, conditions, the consistent implementation of which will affect the price in the long term.
The overall impact of the weather on farms caused the decrease in production. Yields on many farms have fallen significantly, and in the future this may affect their profitability. To combat this, one should pay more attention to the choice of cooling systems on farms, milk-cooling systems, and do this not least.
The price of raw milk, according to the Dairy Intelligence Agency, generally tends to decrease. The price in the domestic market continues to fall, and the weighted average price in Russia has been falling since April, when there were no hot days yet. The DIA index decreased from 25.82 (excluding VAT, fat and protein content 3.6% and 3.0% respectively) up to 25.13.
According to Mikhail Mishchenko, in these conditions, the weak ruble can support the domestic producer - it supports the price of milk on the territory of the Russian Federation, makes it possible for domestic milk producers to be more competitive.
"It gives priority to domestic producers and suppliers of feed, agricultural machinery and equipment. I believe that this is a positive moment", concluded Mikhail Mishchenko.
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