Arla price rise driven by Europe-wide drought

European dairy co-op, Arla has increased its milk price by one eurocent/kg after record hot, dry weather affected milk production across the Continent.

The farmgate price rise means Arla’s 2,400 UK producers will receive a 0.88p/litre boost for August, taking its standard manufacturing litre price to 31.38p/litre.

See also: Drought likely to add 2p/litre to dairy costs of production

For ease of comparison, the increase takes Arla’s standard liquid litre with constituents of 4% butterfat and 3.3% protein up 0.85p/litre to 30.16p/litre.

There were also increases for Arla’s supermarket aligned producers, with its Tesco pool up to 31.58p/litre, Morrisons to 31.14p/litre and those on a grazing premium to 31.37p/litre.

The rise, Arla’s fourth since April, was mainly a result of the widespread drought affecting many areas of Europe, threatening the availability of milk supplies across the Continent.

“Given the impact of the continued challenging weather conditions on farm and milk volumes, this increase will be welcome news to our farmer owners,” said Arla Foods Amba Board director, Johnnie Russell.

However, Mr Russell laid the groundwork for less positive news next month, adding that growing uncertainty in dairy commodity markets and strong supply in organic markets, particularly Germany and France, were putting pressure on prices.

Expert analysis: Peter Meehan, INTL FC Stone

EU dairy spot prices showed further weakness over the past few weeks. Spot butter prices have now fallen by 11% in the six weeks since the beginning of June.

Spot skim milk powder (SMP) also moved lower, down 5% since the end of June. Dairy futures have also been generally lower over the past couple of weeks.

Butter futures for the second half of 2018 fell by 1.5% while SMP futures out to February 2019 dropped by 5.5% on average.

As UK and Irish milk supply look set to suffer at the hands of the prolonged dry weather, collections across Europe’s other main milk producing countries remain relatively strong.

The latest monthly production numbers for May show German and French milk collections increased 4% and 1% respectively compared with last year.

Poland, Spain, Denmark and Belgium also saw stronger production in May, pushing European milk collections ahead of last year. 

On the demand-side, EU exports of butter, SMP and whole milk powder were down on last year in May while cheese exports were higher.

Looking further afield, the latest Global Dairy Trade auction in New Zealand was lower for the fourth event in a row, down 1.7% overall with sharp declines for fats outweighing increases powders.