Market report: Stronger pound threatens milk prices

The strengthening pound is threatening milk price recovery in the UK, according to Nick Holt-Martyn, director of The Dairy Group.

With inflation rising, and the threat of higher interest rates, the pound has reached its strongest level for six months. “Having been protected from the collapse of farmgate prices in 2009 by our weakening currency, the opposite is now happening,” he said. “The improved price prospects resulting from a stable global milk output, rising GDP and gradually falling stocks will pass the UK by if sterling continues to rise.”

Farmers’ shares of market returns were also lamentably low, he added. “With cheese production the lowest for five years, together with stability in the commodity markets, this should mean higher farmer prices in the UK. A gap is opening between market returns and farmgate prices – the normal time-lag suggested a January increase, which looks overdue.

“But providing nothing dramatic happens to sterling, 2010 should be a gradually improving picture which should result in a higher milk price.”