Dairy Crest milk bottles in crate© Rex Shutterstock

DCD members who supply milk under the producer organisation’s formula contract will see their farmgate price drop by 1.425p/litre in January.

The cut is accounted for by an agreed 1.6p/litre rebasing of the formula, for which members were given 12 months’ notice in December 2014. The effect of this is partially countered by a slight price increase delivered by changes in the value of the elements taken into account in the formula used to calculate the farmgate price.

See also: Dairy Crest Direct suppliers to get higher than expected retailer supplements in December

Changes in dairy commodity values and input prices in November feed into the January formula price and delivered a 0.175p/litre improvement to give a January price of 25.376p/litre. This means the formula price maintains a 3.566p/litre advantage over DCD’s standard milk price.

The five elements accounted for in the formula are:

  1. Cream – butter and cream markets faltered during November, but a small backdated increase in Defra-reported UK average butterfat levels in October pushed up the AHDB Cream Index for October, to the benefit of the formula price. Cream values continue to weaken in December, with high production and reduced demand.
  2. Concentrates – high-energy 18% concentrate feed costs have fallen by just 50p/t in four months. Rape and soya meal are at their lowest price since December 2011.
  3. Fertiliser – no change here for the fourth consecutive month and prices could fall further.
  4. Red diesel – prices are down by 16p/litre year on year (or 27%).
  5. Retail price of four pints of milk – increased by 1p for the first time since June 2014.

With cream, feed, fuel and fertiliser markets all under pressure, the outlook is for the formula price to reduce further, DCD warned members.