A welcome light at the end of the tunnel, or a temporary reprieve from the general malaise affecting global dairy markets?
That is the question dairy farmers will be asking themselves, following last week's decision by Robert Wiseman Dairies to lift its milk price by 0.3p/litre for the next two months.
Wiseman's is quite specific that its price increase is only made possible by the strengthening returns from the bulk cream market in recent months. This is born out by published data, which puts the June cream price at £930/t,compared with £870/t in May and just £750/t at the market low-point in February.
But Wiseman's procurement director Pete Nicholson is adamant that "commodity markets remain fragile and it's certainly too early to call an end to the recent period of volatility".
It seems that others in the dairy sector agree.
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| Helen Eustace: Much will depend on global commodity markets. |
DairyCo head of market information Helen Eustace says much will depend on global commodity markets, with many dairy product prices still in the doldrums.
For example, butter is quoted at about $1900/t (£1160/t) on the world market, while whole milk powder and skimmed milk powder have slipped back recently to $2100/t (£1288/t) and $2000/t (£1227/t).
EU prices for these basic commodities are somewhat better, and last month saw butter prices start to climb above intervention levels, with Dutch and UK butter quoted at 7% over intervention.
But EU powder markets are still depressed, with significant volumes still being sold into intervention.
Ms Eustace says this build up of stocks will weigh down on the market for some time as the EU Commission will be obliged to sell stocks into any market rally.
"Undoubtedly, the intervention scheme has been effective in halting the decline in European dairy commodity prices for butter and skimmed milk powder," she says. "But the eventual release of stocks that are building up - currently equivalent to 4% of EU annual production for butter and 22% for SMP - is likely to prevent any recovery in European dairy commodity prices in the short term."
John Allen of Kite Consulting suggests that world dairy prices will increase slowly later this year. "But this won't be until the autumn and, since our markets in the UK are already well above world levels, it won't have much impact on prices here," he cautions.
Mr Allen is particularly concerned by the pressure that is currently building up on the cheese market.
Recent figures show that UK imports of Cheddar grew by 20% in the first four months of the year to over 36,000t, of which over 70% was from the Republic of Ireland. Milk there is currently worth just 17p/litre and Irish Cheddar is undercutting our domestic product by a considerable margin.
Stocks are also said to be copious and, with sterling having strengthened in recent months, there seems to be little prospect of much improvement in the cheese market in the near future.
"I think milk manufacturers will do their best to hold the line in the coming months," says Mr Allen. "They are really concerned about the drop in UK milk production that has already taken place and will not want to see it slip any further. But it will be a challenge.
"For now, milk producers have to be realistic. Even when world markets do turn, there is likely to be a six month lag before producer prices respond."
While the picture for commodities remains muted, there is some optimism surrounding the liquid market, which accounts for half the UK's milk deliveries.
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| Gwyn Jones: Other liquid processors should match Wiseman price lift. |
NFU dairy board chairman Gwyn Jones says the recent price rise from Wiseman should be matched by other liquid processors. "They are certainly quick to follow prices down, so I expect them to be quick to follow them up again."
Mr Jones is also satisfied that the on-going spate of in-store discounting - Asda is currently offering branded Arla milk for just 25p/litre - is at least being funded by the retailers and not passed back to the trade.
The other big factor will be what happens with the Tesco milk price from 1 October. For the first time this autumn Promar will be basing its estimated cost of production using farm business data from Tesco suppliers only, rather than all its clients.
"It's early days yet, though I would not be surprised if it came down a bit," says Mr Jones.
Want to know more about dairy market prospects?
The annual
Dairy Event and Livestock Show will be held at Stoneleigh Park, Warwickshire on 16 and 17 September 2009.
There will be over 460 exhibitors on the site, including many of the country's leading milk buyers. It's a great opportunity to tap them for market information.
For tickets and more information visit www.dairyevent.co.uk or phone 0845 458 2711
For a
Farmers Weekly view on this story, see
Phil Clarke's Business Blog