3 April 1998

Figures reveal just what a tough season its been

Projections of year-end milk

prices in this months Milk

Price Review show how

tough this season has been.

Stephen Bates of Wye

College provides the detail

DAIRY farmers received 14.5% less for their milk between Apr 1997 and Mar 1998 compared with the previous milk year, and prices are expected to fall by a similar amount over the next 12 months.

Figures suggest milk prices for a standard litre varied from 23.43p/litre to 20.24p/litre over the 1997/98 milk quota year, a range of 3.20p/litre.

Those results are based on a standard litre of 4.1% butterfat and 3.25% protein, and simple averages (rather than averages weighted by volume of milk purchased direct from farmers). But they provide a means of relative price comparison.

Standard litre prices for Southern Co-operative Dairies and Midlands Co-operative stayed above 23p/litre. But Midlands Co-op (working on a calendar year) reduced their prices in Jan 1998 and Southern Co-op for April deliveries onwards.

Most milk buyers are closely priced at 21-22p/litre, with the voluntary "successor" co-ops bringing up the rear with prices of 20-21p/ litre before any profit distribution.

The last column in the table shows the % change in the projected year-end milk price compared with 1996/97, for each company.

Significant reduction

The simple average milk price from Apr 1997 to Mar 1998 is 21.77p/litre. Compared with an equivalent price for the 1996/97 quota year of 25.47p/litre, that represents a reduction of about 14.5%. The scale of price reduction is significant and consistent across almost all companies surveyed.

Over the next couple of months, as farmers receive their milk cheque relating to March deliveries and as any final year-end bonus payments are announced (eg, Milk Marques and Scottish Milks profit distribution payments), the projected year-end milk prices may increase slightly, though not significantly.

But from Apr 1998 deliveries, farm gate milk prices are set to drop yet again. Cuts again appear significant, putting further pressure on dairy farm incomes.

In light of its recent selling round, Milk Marque has cut its butterfat price from 2.07p a % to 1.88p a % and its protein price from 3.49p a % to 3.18p a %. Scottish Milk has similarly cut its butterfat price from 2.03p a % to 1.91p a % and its protein price from 3.50p a % to 3.30p a %.

The cuts in milk prices in the table for the 1997/98 milk quota year suggest other firms will reduce prices by about the same level.

Milk Marques latest price reduction would leave its farm gate milk price for our standard litre at 17.17p/litre (including transport charges, but before seasonality), or 17.67p/litre for milk on EODC. Even with Milk Marques 0.2p/litre "elite bonus" for top quality milk, a price of 17.37p/litre represents a further cut of about 14% for the 1998/99 milk quota year.

Such cuts pose a threat to an already stretched dairy farm sector. The best hope is for a weakening of sterling and a strengthening of dairy product markets. But, short term at least, farmers must brace themselves for their April milk cheques at the end of May.

lPrices for February deliveries see few changes in the table. The only non-seasonal price adjustment comes from Golden Vale. It has reduced its "liquid milk premium" by 0.3p/litre, from 1.6p/litre to 1.3p/litre. But it has increased its bonus for top band bactoscan counts (below 50,000) by 0.1p/litre, to 0.4p/litre. &#42