DAIRY FARMERS left frustrated and angry after this year‘s falling milk prices will be hoping that the situation looks up in 2005.

Commodity markets rose last year in defiance of the July cuts to intervention prices – 5% for skimmed milk powder and 7% for butter.

But another round of intervention cuts is due in July, and this is expected to pull the commodity market back.

The analysts got it wrong last year, but insist that the world supply/demand imbalance, which scuppered  their gloomy predictions, is unlikely to repeat itself so strongly in 2005.

One cheese manufacturer has already announced a January price cut, despite expectations of a strong first quarter in the commodity markets.

At least Arla has pledged to hold prices until April, while First Milk has promised to hold them until February.

But there is only so much further liquid prices can fall before supplying the commodity market will look more attractive – AMPE was 19.9p/litre in November – and liquid processors risk losing milk.

Production could be key. Traditionally, spring flushes tend to be greater when output bounces back after producers have reined back production sharply in the previous year to avoid superlevy.

And this year the chance of exceeding quota has been almost ruled out, so superlevy will not be a limitation.

But next year could be different. If returns continue to remain below expectations, some farmers could turn their backs on the industry or lose their enthusiasm for cranking up production.

If Asda can increase the price it pays for its milk, and Waitrose is able to retail at the same price as other retailers while paying more, there must be scope for others to follow suit.

Next year will be a real test for the leaders of co-ops and direct supply groups to get results for their members. If they do their job, prices should not be any lower in 12 months‘ time.

MARKET VALUES

In November, SMP on the UK wholesale market was valued at £1550/t compared with £1430/t at the same time last year. Mild cheddar remained unchanged at £2100/t and mature cheddar was up £200/t at £2400/t. Butter did slip, but by only 4% to £1990/t.

A worldwide slump in milk production – especially in the key Australasian sector – and an increase in demand meant prices on the world market were even more bullish, with SMP increasing $500 to $2300/t and cheddar up over 30% to $2770/t.