Dairy markets surge as global supplies tighten

World dairy markets have shifted into overdrive, with sharp increases for butter and milk powder in recent weeks. But so far there are no signs of any improvement in farmgate prices for British dairy farmers.

Trade data reveals that the world butter market now stands at about $3300/t (£2000/t), an increase of $600/t (£364/t) on the mid-October value and is roughly double what it was worth in the early summer.

Similarly, skimmed milk powder is quoted at over $3000/t (£1800/t) and is now trading at close to 2007 levels. And whole milk powder averaged $3437/t at last week’s auction by New Zealand co-op Fonterra – up 14% on the month and a massive 88% increase in just four months.

Faced with these rapidly-firming markets, last week Brussels took the decision to remove all export refunds for dairy products except butter, which it cut by 68%.

“World dairy markets are shooting ahead and the EU’s decision to remove export subsidies could push them even higher,” said industry consultant Mike Bessey.

New Zealand milk producers are certainly looking at significantly better returns this season, with Fonterra forecasting a milk price for its members of $5.70/kg of milk solids – equivalent to 18.5p/litre and up 21% on last season. “The improvement in global dairy markets reinforces that dairying is a business that’s in good heart with sound long-term prospects,” said chairman, Sir Henry van der Heyden.

But so far there are no signs that British dairy farmers are about to benefit, with no major buyers increasing prices for November, despite a doubling in the cream price this year and firmer butter, powder and cheese values. Indeed the only change this month is the 0.65p/litre price cut by First Milk.

Milk Link corporate affairs director Will Sanderson said the situation was different for every processor, but with a strong weighting towards cheese his company still faced “a very tough and challenging market”. “The spot market may be firming, but the fact is we trade on longer term contracts.”

And in a recent letter to suppliers, Dairy Crest milk procurement director Mark Taylor said that about 50% of its cream went into packet butter. “This is currently competing with imported butter made from cheaper milk.”

DairyCo agreed there were a number of arguments against milk price rises, including the fact that over 76,000t of butter and 267,000t of SMP is sitting in EU intervention stores and overhanging the market.

“Despite this, the fact that cream prices reached the record level of £1700/t at the end of October makes one wonder why even a small part of these improved returns cannot be returned to farmers,” it added.

But NFU chief dairy adviser Hayley Campbell-Gibbons said the case for a milk price increase was “overwhelming”. “Farmers are well aware of what’s been happening on dairy commodity markets and are legitimately seeking increases,” she said.


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