Frustration grows at lack of milk price movement

Thousands of dairy farmers are being forced to wait for fast-improving markets to translate into farmgate price rises.

In the past fortnight several processors have announced significant increases for August and September, as production in the UK continues to slip behind last year.

Among the big names, Dairy Crest gave a 1p/litre rise and First Milk lifted its “A” price by up to 1.25p/litre and “B” rate by 5p/litre.

But market leaders Arla and Muller have only held prices, denting hopes of summer relief for their non-aligned farmers.

The Direct Milk producer organisation, which represents 650 of Muller’s 1,850 suppliers, said it was disappointed with the decision, having proposed an improvement during price negotiations.

In a statement, Muller said its rate remained competitive and stressed it had not introduced an A and B contract, which exposed farmers to the spot trade.

“While we agree with our farmer board that the markets are showing positive signals, we have a different view on when this can be translated into milk price,” a spokesman said.

Frustration

NFU dairy board chairman Michael Oakes was frustrated by the standstill, especially as some firms were wary of being short of milk by the autumn.

His Scottish counterpart, Graeme Kilpatrick, said Muller’s decision was a slap in the face after two years of falling prices. “There is an unequivocal case for the whole dairy market to lift,” he said.

The supply slowdown in the UK has been dramatic: daily deliveries in the two weeks to 23 July were 8.8% down on the year and 4.7% below the three-year average.

British dairy commodity prices have surged since the spring, with bulk cream values rising 71% from April to July, butter up 54% and skim milk powder up 20%.

Milk sold on the spot market – the fastest short-term indicator, despite accounting for a tiny portion of production – is now worth more than 30p/litre. In mid-May, prices were about 14-15p/litre.

AHDB Dairy senior analyst Luke Crossman said surplus British milk was in short supply and if the spot trade kept surging, foreign imports might become attractive.

He said the speed of milk price changes varied between processors. Some, such as Arla and Muller, had sales contracted several months ahead, while others, such as Meadow Foods or First Milk, were more exposed to spot business.

Improvements were likely to come across the board in the next couple of months. “There is only one way prices should be going,” he said.

The Dairy Group principal consultant Nick Holt-Martyn said world markets had turned a corner. “The milk price is now forecast to rise as core prices follow B prices up, due to markets and exchange rates, with further rises likely in the autumn.”

Kite consultant John Allen said as markets turned there was inevitable frustration on the part of farmers as increased prices were passed down the supply chain to consumers. “Remember we are not near break-even cost of production for most UK dairy farmers,” he said.

“Our expectation is that world supply levels are tightening and it’s not a UK phenomenon. The UK situation is the ‘canary in the mine’ – a warning of what is to come.

“Therefore producers can expect world prices for dairy to continue to increase for some time yet. Analysis of previous cycles indicates we will see upward pressure for at least six to 12 months as the market corrects. After that we will see.”