31 August 2001

Outlook for milk yield may mean no price rises

By Robert Harris

MILK sellers could face a tough time extracting more money from dairies this autumn.

Many farmers and some co-ops are pinning their hopes on a milk shortage over the next few months to help secure better prices. But independent consultant Michael Bessey believes such talk may have been overdone.

"We have all been guilty of looking at the negatives, such as the fact that 5% of cows have been culled and inseminations have slipped," he says. "But it has been pretty easy for remaining cows to replace that lost milk, especially as farmers feel they have had a free run to produce as much as they like.

"Some older cows may start going through the OTMS, but there is still a lot of potential to produce milk. More people are starting to think we may not fall far short of quota at the end of the milk year."

Market signals wont help the milk sellers cause either, he suggests. In recent weeks, butter has eased by about £50/t to about £1900/t, although prices could recover as buyers return after the summer break. Skimmed milk powder prices have also weakened to about £1450-£1500/t.

Although the k has risen about 2% since the beginning of August, boosting average intervention prices for the month by £50/t for butter and £35/t for SMP, support values remain well below market values. "They will probably have to strengthen a lot more before buyers readily accept that farmgate prices should rise," says Mr Bessey.

The weaker £ has done little to help exporters either, since cuts in export refunds, fixed by Brussels from May, far outweigh the currency effect, he adds.

Mild cheese prices, at £2300/t, have improved, but are little different than in the spring. Although they and mature Cheddar values may rise as demand increases towards the end of the year, it may not be by much, he believes.

Returns from liquid milk, which accounts for about 50% of raw milk use in the UK, is another unknown, says Mr Bessey. "This market operates to its own rules. But UK farmgate prices are now in the middle of the EU table, rather than propping it up, so the case for supermarkets to help producers appears to be receding."

John Duncan, chairman of First Milk – the co-op which recently released a document warning of a winter milk shortage – agrees with some of those sentiments, but still believes prices will rise.

"Commodity markets are no stronger than during the last milk price negotiations and milk production has suffered little. But we have seen the sharpest drop in weekly milk deliveries from our farmers recently."

A First Milk survey of 200 members showed that farmers would only keep older cows until they started costing money – towards the end of September, he adds. "There will then be a huge reduction and a further significant hole in the middle of winter, due to delayed inseminations soon after foot-and-mouth broke out."

Negotiations with dairies, some of which also expect milk to be short, are due to start next week, says Mr Duncan. "We will offer customers the opportunity to secure supplies by offering private contracts, though this would have to be recognised through a price mechanism.

"The liquid sector needs to be assured of supplies and the processing sector will take a view, but we will certainly be looking for a milk price increase this autumn."

lWith no changes to the underlying standard litre price in July, all the changes to the rankings in our Milk Price Review are due to seasonality bonuses. These flatter some of the top companies, and leave some companies offering a level payment structure trailing towards the bottom of the table. &#42