Milk prices on the turn as commodity markets weaken

The much anticipated downturn in farmgate milk prices appears to have arrived, with global and domestic market pressures coming to bear as winter approaches.

Leading dairy co-operative Arla Foods confirmed on Tuesday (30 September) that its October milk price for conventional milk (based on a manufacturing litre) will fall by 1.7p/litre to 45.34p/litre – the second month in a row the movement has been downwards.

See also: Advice on dairy buildings designed for weather extremes

“Milk supplies are increasing both globally and in the EU,” said a spokesman. “Retail sales are flattening, and commodity markets are adjusting down.

“The outlook is softening further from commodity markets impacted by plenty of milk available shifting the supply and demand balance.”

Milk processor Muller has also announced a price reduction.

Having held its price for a standard liquid litre at 42.75p for October deliveries, it has now announced a 1.25p/litre fall for November, taking the price to 41.5/litre.

Richard Collins, head of agriculture at Muller, said: “While we recognise the ongoing challenges throughout the supply chain, we can’t ignore current market price reductions and supply being above forecast.”

Freshways has also dropped its price – by a more significant 6p/litre to 36p/litre for November – complaining of spot milk prices of just 30p/litre “at a time we would expect them to be on par with farmgate”, and a slump in cream values.

And cheesemaker Barbers has dropped its November milk price for a 4.2% protein and 3.4% butterfat litre by 2.57p to 42.51p.

Massive drop 

But the most dramatic downturn is that seen for suppliers to Devon-based cheese producer Parkham Farms, which has announced a massive 8p/litre drop for November milk to 35.5p/litre.

In a letter to suppliers, director Peter Willes blamed a steep fall in mild cheddar values and the continuing oversupply of milk.

“Twelve months ago, the cheese price was £4,300/t,” he said. “The current AHDB mild cheddar price is £3,420/t quoted for September. In reality you can’t get that price now –  it’s closer to £3,300/t.

“Buyers will now not buy product unless we reduce our prices to these levels, therefore the milk price has to come down with it. We are not going to take the hit on the margin and simply encourage more milk to be produced at farm level or keep cheese prices high and lose sales.”

Bearish sentiment

AHDB data confirm the bearish sentiment, with average daily GB milk deliveries to 20 September running at 34.27m litres – some 5.7% higher than 12 months ago.

The latest Actual Milk Price Equivalent (AMPE) figure – representing the purchase value of milk used for butter/skimmed milk powder production – is quoted at 41.27p/litre for September, which is 8% down on the previous month.

The Milk for Cheese Value Equivalent (MCVE) quote for September is estimated at 38.47p/litre, some 11% lower than in August.

Ian Powell of the Dairy Group said: “The dramatic price falls have come at a time when farmers are facing increased costs due to this summer’s drought, which is putting a squeeze on margins.

“We were expecting some price correction. With milk production still running 6% higher than this time last year, the market just can’t handle that level of supply in the coming months.”