1 August 1997

Price cuts on the cards after Marques latest selling round

By Philip Clarke

MILK price falls of between 2p and 3p/litre are expected this autumn after the completion of Milk Marques latest selling round.

The co-op has sold up to 85% of the 13.8m litres a day it had on offer from October, at prices up to 2.3p/litre lower than those it is currently earning and 4.5p less than it achieved a year ago.

This 85% clearance is better than some trade observers expected, even though it assumes Milk Marque "tops up" its cheaper supply-led contracts to the full. But it still leaves a substantial surplus, of 2.1m litres, looking for a home.

"We are already committed to sell 0.5m litres a day through our short-term markets," said Milk Marque chief executive, David Yeomans. "We will be looking at other ways of marketing the balance, including contract processing, which has been provingsuccessful since starting inHolland earlier this month."

Milk Marque was not able to say what this would all mean for producer prices from Oct 1. The group had already sold another 2.3m litres a day at higher prices in previous selling rounds (either on 18-month contracts from Oct 1996 or 12-month contracts from Apr 1997). "The main board will sit down in September to decide. By then they will know better the outcome of sales to the short-term market and how contract processing is shaping up," sais a spokesman.

But based on the 11.7m litres a day that Milk Marque has just sold, FW estimates that the co-op will achieve an average realisation of 21.14p/litre. This compares with the 23.7p/litre it made from the last selling round, a drop of over 2.5p/litre.

Much will then depend on the performance of the remaining 2.6m litres to be sold. But if one assumes this gets a lower price (with a large green £ revaluation still due on Aug 20), this is likely to wipe out the gains from the 2.3m litres already sold. That leaves Milk Marque with a net realisation of about 21p/litre for all its supplies from Oct 1.

From this, the co-op will have to deduct its costs and its marketing fees, leaving producers with about 20p/litre in their milk cheques. This would represent a fall of 2p from the standard litre price, compounding the 2.5p drop introduced last April.

&#8226 This months Milk Price Review continues to show the impact of seasonality. Bucking the national trend is Unigate, which introduced a 2p/litre bonus for June deliveries. This reflects the fact most of the companys suppliers are in the south of the country and have a different supply profile.