Farmgate milk prices cut again as global supply rises

Booming global milk production is keeping the squeeze on farmgate prices here in the UK.

Dairy Crest has cut its liquid milk price by 1.25p/litre to 31.19p/litre from July and Arla dropped its direct-supplier price by 1.5p/litre to 32p/litre.

Earlier this week First Milk slashed its manufacturing contract price by 1.15p/litre to 30.85p/litre.

All the processors blamed slipping returns on dairy commodity markets around the world, as average prices at Fonterra’s Global Trade Auction plunged 4.2% on Tuesday (3 June) – the eighth drop in as many sales.

But cheddar prices rose 8%, skimmed milk powder increased 2.1% and butter prices stayed level, hinting at possible stability ahead.

DairyCo analyst Luke Crossman said milk price cuts reflected what was happening in the wholesale markets.

“UK wholesale prices have been subject to downward pressure since the turn of the year as increasing supply has caused some buyers to back away from the market in anticipation of lower prices,” he said.

“Global commodity prices have continued to fall – again due to a softening in demand.”

UK milk production has started its seasonal decline after reaching its annual peak of 43.7m litres on 3 May, but is still running about 7% higher on the year and 6.2% up on the three-year average.

Irish farmers produced 473m litres in March, 1.1% more than the same month in 2013.

Further afield New Zealand’s production in March was up 22% on the previous year even in its seasonal trough, while US farmers delivered 1% more milk in April than 12 months before.

“Going into the summer, there is currently nothing to suggest production will decline below seasonal trends,” Mr Crossman said.

“The outlook for global demand remains strong – however there is currently some short-term imbalance in the market.”

See: Arla drops milk price by 1.27p /litre

Senior consultant at the Laurence Gould Partnership, James Miller, said farmers need to be prepared for these ups and downs that could become the norm as we move towards milk-quota abolition.

“The problem for farmers at the moment is they cannot manage their milk price by selling forward,” he said. “That is the missing link in dairy.”

Mr Miller said farmers should concentrate on the on-farm aspects they were able to influence.

“The very best thing is to maximise your milk price by trying to fulfil all the parts of the contract, like mastitis control and managing fat and protein yields.

“Also the quality of forage is everything, so they can manage their reliance on concentrates, though getting that right is not the easiest thing with our weather.