Are dairy buyers smarter than suppliers?
“You have buyers who are more shrewd and perhaps more strategic” is how Lino Saputo, chairman and chief executive of Canada-based dairy giant Saputo, puts it, identifying what he termed a market “pendulum”.
When dairy markets are “good, everybody [on the production side] wants to capitalise it and everyone has the fear of missing out, so they put on more production.
“And then once that happens, they exceed the ability for consumers to consume those solids and everything goes into inventory stocks.
“And those inventory stockpiles are published, and of course the buyers are going to be smart enough not to buy when there’s too much inventory in the system,” Mr Saputo said.
‘Not rocket science’
It is “not more complicated than that”, he said, adding that the outcome of this swing is that “there’s been a lot more volatility” in world prices.
“I don’t think, to be honest with you, that it’s rocket science in our industry.
“I think if we had the right balance between supply and demand, there would be less volatility in the system,” Mr Saputo told investors.
“Unfortunately, the major co-ops around the world don’t seem to have tapped into that.”
Even some producers themselves are berating the industry’s response to weaker prices, in the UK at least, where Michael Oates, dairy board chairman at the NFU [short for National Farmers Union] urged farmers against just keeping their foot on the accelerator.
“We have all been busy fools before. As prices fall, some tend to produce more to maintain their cashflow coming in,” Mr Oates said
“It is a bit of hamster’s wheel and we all learned some pretty hard lessons,” with the last dairy downturn showing that “you could not run fast enough”.
‘More milk than consumers can consume’
Mr Saputo, thought, highlighted the US market was one that “continues to be challenging… because there’s more milk in the system than consumers can consume.
“That’s putting pressure on some of the inventories we have in products like byproducts, WPC [whey protein concentrate] and whey”.
Still, perhaps if Saputo had been more shrewd, it would have waited for lower prices before stockpiling.