28 August 1998

Milk price down as MM seeks an end to impasse

By Robert Harris

MILK Marque has cut the price of milk on offer in its new August selling round in a bid to end the stand-off with big buyers.

Hopes of a 1.5-2p/litre rise in farm gate milk values from October onwards have been dashed. Even if the round succeeds, farmers can expect less than half that amount. Indicative prices to the trade have been cut by 0.7-1p/litre compared with the July selling round, and are just 0.1-1p/litre above current levels.

"Clearly if progress is to be made, both sides have to move from their present positions," says MM managing director, Paul Beswick. "We have moved more than the market requires to secure this sale. We now look to our customers to reciprocate by bidding for milk."

How many of the 13.6m litres a day offered on six-month contracts will be sold by the Sept 3 deadline remains to be seen. Mr Beswick is confident the round will succeed.

Dairy companies are reluctant to comment. "Working out the implications of new prices takes time, as does the agreement of our various operating companies," says Unigates Brian Pocock.

"How dairy companies bid is an individual matter," says Jim Begg of the Dairy Industry Federation. The new capacity contract remains a key concern, he notes. Here, the buyer contract processes the milk for MM, and either buys the produce at a previously agreed price, or leaves MM to sell it. Dairy companies view this as a way for MM to use their capacity on the cheap, and then trade.

"It is also uncertain how the market will clear if supply does not balance demand," says Mr Begg. MM maintains enough spot and processing markets exist. "We will take a view on September 3 when we know what is on the table," says Mr Beswick.

Short-term milk markets have been relatively firm, with MM spot contracts making 19.7-20.4p/litre. A recent United Dairy Farmers auction of 4m litres realised an average of 22.11p/litre.

Independent consultant Roger Metcalfe suspects bids will account for less than half the milk on offer. "Companies are not short of their own liquid product. The vast majority of this milk will go for Cheddar and butter manufacture. At 20.5p/litre, the varying supply contract is still too high."

Rindless mild Cheddar is worth £2050/t, he adds. "Even a price of 19-19.5p/litre leaves little margin." The same applies for supplies destined for bulk butter and skim milk manufacture. Russias economy is in turmoil, so it is unlikely to take much surplus butter this season, says Mr Metcalfe. &#42