26 October 2001

End of negotiations sees little change in milk price

By Robert Harris

EX-FARM milk prices remain largely unchanged after protracted negotiations between co-ops and processors finally drew to a conclusion this week.

But few long-term deals have been struck. Market uncertainty means many co-ops and processors have fixed prices for October only.

Some buyers believe ex-farm values will face further pressure in the coming months due to declining commodity prices and an unwillingness by retailers to repeat previous liquid milk price rises.

Fears of a milk shortage due to foot-and mouth, which would have helped support the market, also appear to have receded.

Butter prices are nearing intervention values, and mild Cheddar prices have eased due to higher make in the UK and Ireland. Milk powder prices, especially skimmed, have been hit by falling world prices (SMP values have dropped by 15% since June) and the removal of EU export refunds.

First Milk, Milk Link and United Milk report no change for October farm-gate prices at least. But the Milk Group announced a fall of about 1p/litre this week (though its price has been higher than most co-ops for months). According to our table, its standard litre price will be about 19.5p/litre.

But a new flexibility payment to help rationalise haulage and every-other-day collection adds 0.4p/litre to that.

Most major processors prices remain unchanged, though some are offering incentives for extra production. But co-op Zenith, which majors on longer-term contracts, has bucked the trend and will announce a small rise within days.

For now, at least, our latest milk price table will remain largely unchanged, apart from seasonality shifts. But Nestlés senior milk buyer, Will Mackereth, is cautious.

"We are holding prices through October and November. But, judging by commodity markets, it is imperative that prices go down in the not too distant future."

The organic milk sector is also under pressure. Co-op OMSCo has only sold about 48% of its milk into organic outlets since August, says chief executive Sally Bagenal.

As a result, producers now receive the guaranteed organic price of 29.5p/litre only on that % of their milk. The balance is sold through conventional outlets – currently paying 17.5p/litre after transport charges.

Simply put, the average return works out at less than 24p/litre. But Mrs Bagenal says the firm is encouraging producers to cut back and produce low cost milk for a better price.

Wildly optimistic supermarket sales forecasts are partly to blame for the difficulties. "We had estimates from retailers of 10-15% market share, but it is has stayed nearer 2.5%."

Poor shelf displays have not helped either, she adds.

OMSCo membership has almost doubled this milk year to 258, compounding the problem.

"We know we have got to get this right within a year for our members sake. We are working very hard to stimulate demand through a professional marketing campaign," says Mrs Bagenal. &#42