30 August 1996

Price cuts no help as Marque fails to sell all of its milk

By Shelley Wright

MILK MARQUE has managed to sell only 85% of the milk it has available for delivery from October, despite having dropped the price twice in the past month.

Only a fortnight ago MM announced there would be a third and final round of bids for the 10m litres a day that were on sale. The two previous attempts to reach market balance were abandoned when dairy firms bid for only 80% of the milk.

At the launch of the third round MM officials predicted that, having dropped prices, all the milk would be sold. But this week chief executive, David Yeomans, had to admit that the market had changed and that dairy firms were reluctant to commit themselves to long-term contracts.

One industry commentator suggested that, after two years of having prices dictated by MM, the dairy firms were now flexing their muscles. "Milk Marque is beginning to be played like a large salmon," he said.

The 1.5m litres a day that remains unsold, equivalent to nearly 8% of MMs annual volume of milk, will now be offered on short-term daily, monthly and bi-monthly spot markets. Already MM has doubled the size of its bi-monthly spot market for October to 400,000 litres a day.

Officials are offering no advice yet to producers on how their milk cheques might be affected, but industry analysts say it is inevitable that farmers prices will fall.

Mr Yeomans, however, remained positive. He said that offering more milk on short-term contracts showed how MM was responding to market demand. "I think it is fair to say that our selling system is now the most open and flexible in Europe," he added.

But with so much extra milk now likely to go to those short-term markets, MM could again be heading for a battle with the Dairy Industry Federation.

John Price, DIF director general, said MM had previously tried to manipulate the spot trade by setting reserve prices. "If the spot market worked properly then Milk Marque would offer a fixed volume of milk, with no reserve, and the price would fluctuate throughout the year according to demand," he said.

John Ross, Nestlés head of milk buying, said he thought MM could be in trouble. With markets for skimmed milk powder so weak at the moment, and intervention stores about to be closed, there was little demand for milk on the spot market at the prices MM tried to secure. That was demonstrated in Scotland last month when Scottish Milk offered 2.4m litres for September delivery at 24.5p/litre and managed to sell only 400,000 litres, said Mr Ross.

&#8226 This months Milk Price Review (below) shows seasonality payments continuing to dictate the rankings. In stark contrast to last months review, which saw Waterford Foods, Lancashire Dairies and Midlands Co-op near the top of the table, these flat-rate payers have slumped to the bottom in August as they offer no seasonality premiums.

Those companies that do offer premiums are paying up to 3p/litre more as they try to encourage a more even supply profile throughout the year.