An Arla lorry© FLPA/REX/Shutterstock

Arla UK has dropped its June milk price by 0.4p/litre despite the company holding prices for the rest of its 9,500 producers on the continent.

The co-op’s 2,500 UK producers will receive 27.73p/litre for the manufacturing standard litre from next month.

See also: Model dairy finds outlook better but cashflow a challenge

The UK’s largest dairy company will pay 26.65p/litre to producers on liquid contracts, which will be scrapped from 1 January 2018 as the co-op moves to a constituent-based, manufacturing-only contract.

The price cut is effectively a reversal, albeit on a slightly smaller scale, of UK Arla Farmers’ Cooperative (Ukaf decision last month to hold prices in spite of a one euro cent a kilogramme cut for producers on the continent.

Ukaf used a reserve fund, in anticipation of a cash benefit from the exchange rate mechanism it uses to smooth sterling-euro currency fluctuations, to hold its May price.

Double impact

This was to prevent a double impact of milk price reduction at the same time as maximum seasonality deductions, said Arla Foods amba board director Johnnie Russell.

He added: “The Ukaf board believes it is necessary to make a small downward adjustment to the milk price, from 1 June, of 0.4p/litre, to rebalance the cashflow.”

Record butter prices

The price reduction comes as EU butter prices hit record levels for March at €4,500/t (£3,890/t), with UK bulk cream at £1,730/t and UK butter averaging £3,725/t, 116% and 101% up on the same month last year respectively.

The returns from UK and EU butter prices are now so high they offset slump in skim milk powder prices, which have seen a big increase in EU intervention stocks, according to EU Commissions dairy market analyst Sophie Helaine, speaking at last week’s Dairy Industry Newsletter conference.