28 June 2002

Auctions raise milk price hopes

By Robert Harris

MILK prices at auction are recovering from recent lows, raising hopes that ex-farm values will follow.

First Milk cleared all of its 2.5m litres of July milk offered last week at an average of 18.94p/litre – about 3p/litre more than the past couple of months, when much milk was also left unsold.

"You would expect auction prices to be higher in the summer as supplies start to tighten," says First Milks Jonathan Horrell. "However, secondary markets are often a good indicator of where markets are going.

"But market signals are very mixed and we have yet to see a recovery in product prices."

Auction milk represents only a small fraction of First Milks overall volume. And its apparent 3p/litre premium over First Milks current ex-farm standard litre price (see table) takes no account of transport and marketing charges (about 2p/litre).

This means that contract milk will have to be worth at least as much as the current auction price after next Octobers price round if the ex-farm price is to improve by 1p/litre. Better product prices hold the key if co-ops and processors are to pay more for their milk.

Little has changed recently on the butter market, with prices still at intervention equivalent levels at about £1900/t.

Skim milk powder markets remain in some disarray after Brussels opted for a tendering system rather than continuing with open intervention, after stocks reached the 109,000t ceiling. As farmers weekly went to press, offers had started but no awards had been made.

Prices could settle at about 95% of the intervention price, which stands at about £1300/t, says independent consultant Michael Bessey. "But there is some hope that the market will be firmer in the autumn, mainly due to good animal feed demand."

Continued strengthening of the k could boost both SMP and butter value. In the past six weeks alone, intervention prices have gained about £50 and £70/t respectively, worth about 0.8p/litre.

Mild cheese is worth about £1700-1750/t, but should improve over the next few months if output follows its seasonal fall and spot milk prices continue to rise. "Cheddar makers cant sell cheese at £1700/t if they are paying 18-19p/litre for milk," says Mr Bessey. But large stocks of mature Cheddar need to be sold in the second half of the year. "Some say we may not have seen the bottom of this market."

Other factors could also affect the milk price. Milk output has dropped sharply from its early May peak, and June output may fall below last years level. How it will fare over the rest of the milk year is unclear. More farmers will quit due to low prices, though recent surveys suggest there are plenty of other producers ready to expand and take up the slack.

The next barometer of milk prices will come when United Dairy Farmers of Northern Ireland holds its auction in early July. At a recent sale it achieved an overall average of 15.28p/litre for 46m litres of July and July-September milk, up 1.75p/litre on its June price.

"Having been at the bottom for June milk, things have started to improve," says Uniteds Euel Agnew.

Our latest Milk Price Review shows several companies reduced their prices for May milk, including Nestlé (by 1p/litre), Golden Vale (0.82p/litre), United Milk (0.7p/litre), Milk Link (0.5p/litre) and First Milk (0.35p/litre).

But Glanbia cut prices the hardest, taking 2.8-3p/litre off its Lockerbie, North Tawton and Appleby prices (not shown). It also reduced its Malpass contract by 0.5p/litre (following an April cut of 1.95p/litre). Melton Mowbray and Llangefni remained at April levels (which were cut by 2p and 2.25p/litre respectively for that month). &#42