Budget for 24p-27p/litre milk price in medium term, say consultants

Average GB milk prices are unlikely to return to 30p/litre highs and will instead hover at about 24-27p/litre over the next five years, according to farm business consultants Andersons.

Rather than hoping for a return to the milk price peaks of 2013 and beginning of 2014, producers should budget for the medium term for a lower, but quite wide milk price range, said the consultants.  

The range in milk prices producers receive had widened hugely in the past two years and was likely to remain wide, said Richard King, partner and head of business research at Andersons.

Some suppliers on co-operative contracts were receiving as little as 16p/litre, while others on supermarket contracts were receiving more than 29p/litre.

Defra’s average GB milk price is currently 23.13p/litre (for February), but Andersons estimates this could fall to about 21.80p/litre during the spring flush, before starting to edge up a little.

However, there was unlikely to be a significant price recovery before the end of the year due to plentiful global stocks, said Mr King. 

Just last week the EU warned world dairy production was massively overshooting any extra demand for milk and prices would not recover until this was reined in.

See also: Expect more milk price falls, EU warns 

By the end of the year, Europe, the US, Australia and New Zealand will have produced 3.5bn litres more milk than they did in 2015, said the EU.

Don’t chase marginal litres

Mr King advised dairy businesses to make short- and medium-term (about five-year) budgets and focus on cost cutting, rather than chasing increased output to improve margins. 

“One of the traps in times of low prices is to try to make up a shortfall in income by producing more,” said Mr King.

“The marginal litres tend to be expensive to produce and for any farmer on ‘A’ and ‘B’ pricing models, especially, will not provide a return.”

In the medium term, negotiating, challenging and postponing costs (within reason), as well as benchmarking and analysing the business would help – and was often what separated the best businesses from the average, he said.