9 January 1998

MM ups trade price but no increase for farmers

MILK Marque is raising its prices to the trade, launching the January selling round (for April deliveries) at 0.6p/litre above current values.

But despite this, chief executive David Yeomans said this week that producers should not expect any imminent increase in their returns (worth 20p for the standard litre).

"The key to producer prices will be currency," he said. "It is hard to see sterling coming off the boil in the next few months."

The value of sterling is set to play an increasing role in Milk Marques realisations, as the company is introducing a greater degree of index linking to its contracts. Some prices will change monthly in relation to prevailing market and green exchange rates.

"There will also be a commercial index," said sales director Paul Plowman. "This will take into account changes in butter and skimmed milk prices in Holland and Germany, as well as movements in commercial exchange rates." These prices will be reviewed quarterly.

Other innovations include:

&#8226 Long-term contracts, of up to five years, to give buyers stable throughput and prices to encourage investment.

&#8226 Elite quality milk, guaranteeing supplies only from farms with top hygienic quality.

&#8226 Animal welfare accreditation, for milk from farms verified under the welfare code of practice.

Dairy companies have until Jan 20 to bid for up to 15m litres a day being made available. "There is renewed optimism in the market place and we therefore expect the milk to be cleared in the first selling round," said Mr Yeomans.

But dairy trade reaction suggests this expectation may be misplaced. "The lowest priced contract is now some 1.5p/litre above the intervention milk price equivalent (IMPE)," said Dairy Industry Federation director general, John Price.

"Yes, markets have been more buoyant in recent months, but these quotes are for deliveries from April. There is no point looking back. These prices are arbitrary. To me they look a bit high."

Under OFT rules, Milk Marque has to achieve at least a 90% clearance for these prices to stick. If not, it has to hold further selling rounds at lower prices, until it reaches its floor price – the IMPE – worth just 19.01p/litre.

Industry observers suggest Milk Marque will struggle to achieve this 90% clearance and, as such, it seems unlikely producers will see any increase in the standard price from April.

They can, however, look forward to a small bonus payment on this years deliveries. "Our members have already been told they will get a bonus in the form of preference shares, worth 0.25p/litre," said Mr Yeomans.

"We are also on course to give them a small additional bonus." This is on the back of better than expected returns from contract processing and higher prices due to index linking contracts to sterling since October.n

Milk Marque January selling round – p/litre

Contract typeIndicative priceCurrent price

Premier service24.624.0

Ex-farm profile23.122.5

Fluctuating22.622.0

Residual A20.920.3

Residual B20.419.8

NB: 15m litres a day on offer, plus another 1.3m litres set aside for the short-term market. Milk Marques total estimated availability now stands at 6bn litres a year, compared with 6.3bn litres at the last selling round.