28 February 1997

Prices falling in MM sales deals

By Philip Clarke

MILK Marque has completed its selling process to the trade for deliveries from April, accepting bids for just 74% of its supply at prices up to 9% lower than those it currently receives.

As expected, most buying interest was in the cheaper "fluctuating" and "residual" contracts, which attracted 80% of the bids.

And with further price falls anticipated later in the year, most buyers went for six-month contracts, rather than the 12 or 18-month options available. "With time ticking away on another green £ revaluation on Mar 29, which will reduce intervention values, dairy companies could not risk buying too much milk at current prices," says Roger Metcalf of Agri Food Consultants.

Milk Marque estimates it has about 18m litres a day to sell in the next milk year. The latest selling round accounted for 9.8m litres a day. Another 3.8m litres is already committed, sold on 12 and 18-month contracts in previous selling rounds.

This means Milk Marque has over 4m litres a day to sell on the more fickle short-term markets – double the current amount. These dealings will therefore have a greater influence on what it can afford to pay its members.

Short-term markets operate on an auction basis, with buyers tendering both for volume and price.

While these offers are subject to an undisclosed reserve, spot sales are expected to trade close to the lowest priced residual contract – 22.11p/litre – and could go lower still following the green £ revaluation.

Analysis by Mr Metcalf suggests Milk Marque will realise about 23.7p/litre from April. From this he deducts about 0.3p/litre "other costs" and then the £13.50 a day "marketing charge" levied on producers with every day collection.

The result is an estimated producer price ranging from 21.45p/litre for the 250,000 litre member, to 22.9p/litre for the 1m litre dairy farmer. These prices assume average milk constituents and top hygiene quality.

"At these prices, even the larger producer is going to suffer," he says.