The dairy market of Ukraine changed rapidly during 2017. Therefore, the decrease in UMI in January by 4.1% compared to the standard for January growth of 2-4% was not surprising at all.
This is written by Andrii Yarmak, an economist of the technical cooperation department of the UN Food and Agriculture Organization (FAO), on his Facebook page.
"A simple rule of the Ukrainian milk market until recently said that UMR never falls in January. And if UMI falls in January, then something powerful happens on the world markets and/or on the Ukrainian market," writes Mr. Yarmak.
The decrease of UMI, in his opinion, occurred solely at the expense of a noticeable increase in the prices of forage fodder and meal.
"Speaking frankly, there was really no real price increase for these goods. There was simply a rapid devaluation of the Ukrainian currency, which was also promptly reacted with the prices of forage grains and protein meals, which, in the main, are exported.
We have long seen the ratio of the euro to the dollar at 1.25. And this is in the hands of those dairymen oriented to export to the EU countries. Since the UAH devalued not only to the euro, but also to the US dollar, it is, theoretically, in the hands of those who export to other countries of the world. However, everything is not so simple - milk producers felt the growth of feed costs even more quickly, and it's not so easy to bargain with them, because they have built up muscles in recent years. Many enterprises now already have a high volume of milk, and the cooperation of large producers is gradually further strengthening their positions.
However, the truth is that the world market for milk, despite recent strengthening, remains relatively weak. Any strengthening of this market, as a rule, is caused by temporary emotional factors. Fundamentally on the market and further a lot of milk, and prices, fundamentally, and further high enough, "- argues Mr. Yarmak.
Support for devaluation is likely to only help stabilize the milk market, but it will not stop the decline in UMI, which may occur in February, and will only accelerate in March-May.
The profits in January 2018 decreased by only 0.5% compared to the first month of last year.
"Can a Ukrainian manufacturer increase efficiency by a half-percent per year?" Of course he can - we have great potential! And the profit level in January was the second highest in the last four years, and by as much as 28% higher than in January 2016, therefore there are no reasons for sadness, " writes Andrii Yarmak.
Factors to be considered in 2018:
- In 2018, there will not be such high prices for oil in the world and in the EU, including, so there may not be such a powerful export of oil from Ukraine;
- This year, the production of quality milk will grow very noticeably, and this will gradually put pressure on prices, as marketing of our finished products to export markets remains relatively simple;
- Milk production in the households of the population has ceased to fall. It is not known how the psychological factor affects the expected difference in the second grade, but, most likely, it is not essential. I think that this factor can be considered negative for the milk market
- The weather in the region of Oceania and Southeast Asia can be adjusted, which can also kill not the only positive factor on the market.
So, Andrii Yarmak sums up, Ukrainian milk producers need to prepare for a less profitable year than the previous one. Therefore, we need to speed up the work on creating your own processing facilities, focused on the export of expensive and high-quality products.