Low milk prices eat into dairy farmer margins

Dairy farmers are facing mounting losses as milk prices remain 5-10p/litre below current cost-of-production estimates.

Most milk buyers have held farmgate prices at low levels in September and into October, though some processors made further cuts.

Despite weak prices, supply remains high and milk deliveries are still up marginally on the same period last year.

See also: Arla profits fall by 46% on year during first half of 2023

Farmgate milk prices

  • Arla has confirmed a price hold at 35.12p/litre for a manufacturing litre in September, and an organic price of 40.79p/litre
  • Dairy farmers supplying Muller direct will continue to receive 37p/litre into October for a liquid litre
  • First Milk will stand on at 36.85p/litre in October for a manufacturing litre
  • Barbers Cheesemakers is reducing its October milk price by 1.65p/litre to 36.14p/litre, based on a standard manufacturing litre
  • Small cuts have also been announced by Saputo Dairy and South Caernarfon Creameries, according to industry reports

UK daily milk deliveries averaged 32.1m litres for the week ending 26 August, up by 0.5% on the same week last year.

Demand remains bearish and UK wholesale markets saw price falls in August for butter, skimmed milk powder and mild cheddar.

Meanwhile, the actual milk price equivalent (Ampe) market indicator fell to 28.6p/litre in August – its lowest level for three years.

However, there have been some early signs of improved demand at the latest fortnightly Global Dairy Trade (GDT) auction on 5 September.

The GDT price index increased by 2.7% to average $2,888/t (£2,300/t) following four consecutive price falls.

Dairy analyst Chris Walkland said the rise in the GDT was a good sign, but not enough to really change market sentiment.

“I wouldn’t say we are out of the woods yet in terms of further price reductions. The market has to pick up significantly for the risk of that to go away,” he said.

Mr Walkland expects more of the same for the next month or so, as there is plenty of stock about. In the longer term, he suggests the market is likely to be influenced by levels of demand from traders making purchases ahead of the fourth quarter of the year in the run-up to Christmas.

Arthur Fearnall, Arla Foods amba board director and farmer, said: “Inflation is finally softening, albeit slowly, and as a result retail sales are picking up.

“Over the summer, global commodity markets have turned to negative, but European markets are more stable. The outlook is stable. However, there is some uncertainty driven by commodity market developments.”

Price rise for Sainsbury’s farmers

Farmers who are part of Sainsbury’s Dairy Development Group will receive an additional 1p/litre from 1 October on top of the cost-of-production price.

A further 1p/litre sustainability bonus is also available to farmers who meet the requirements.

Since its inception, farmers in the group have received 2.45p/litre more on average compared with the rest of the market.

Gavin Hodgson, director of agriculture, aquaculture, and horticulture at Sainsbury’s, said: “The dairy farming industry is becoming increasingly challenging and we recognise the responsibility we have as a retailer to support farmers, and the need for continuous investment in this sector.”

The numbers

  • 32.1m litres Average UK daily milk deliveries (w/e 26 August)
  • 28.6p/litre Actual milk price equivalent (Ampe) in August
  • 2.7% Increase at Global Dairy Trade auction on 5 September