26 September 1997

Butter turns up gold as milks braced for fall

AS MILK producers prepare for next weeks drop in prices, processors are enjoying a period of booming markets.

Butter, in particular, has been rising strongly, with Continental prices now at an eight-year high due to good export and internal demand, reduced output and low stocks. German and Dutch suppliers have seen a 15% rise in the past 12 months.

UK butter manufacturers have been excluded from this bonanza for much of the year due to the strength of sterling. But now even they have seen prices rise as the £ has weakened and Continental prices have firmed even more.

According to industry analyst Mike Bessey, UK values have gone up about 6% since early August to over £2400/t and are continuing to rise. "In effect, the market has shrugged off the four reductions in intervention prices (caused by green £ revaluations), and the position looks reasonably secure up until Christmas," he says.

Skimmed milk powder also seems to have turned the corner. Following last months revaluation, it was trading at £1430/t, compared with over £1700/t a year ago. "But, since intervention closed at the end of August, UK prices have perked up and it is now at £1470/t," says Mr Bessey.

The UK Cheddar market is also believed to be on the move, due to a seasonal fall in supplies, the diversion of raw milk to butter plants and the drop in sterling.

These developments come at a time when farmers face another 2p/litre cut.

Milk Marque chief executive David Yeomans said that, while it was too late to prevent the October fall, at least the improving market should mean no further cuts will be necessary. "The fact is, the selling round in July did not account for the last green £ revaluation in August, which should have taken another 0.8p/litre off prices. On this basis, and including the lag effect, next April could have seen milk prices below 19p/litre."

The stronger markets were also good news for Milk Marques monthly and spot milk sales, which will account for about 1m litres a day during October. And with 8% of the co-ops milk also going for contract processing, the prospects of making a decent margin here were also encouraging.

But Northern Foods executive, Peter Walker, played down the significance of the firming markets, saying it was too early to tell if the upturn was more than a "blip".

And Dairy Industry Federation commercial director Jim Begg added that half the UKs milk went to the liquid market and here competition was still intense.n