Price cuts signal tough spring for milk producers

A raft of milk price cuts for January and February confirm the market uncertainty over production and demand.

Arla’s 1.09p/litre cut for January takes its standard manufacturing (4.2% butterfat and 3.4% protein) price to 51.12p/litre (organic 55.9p/litre).

The reduction is a combination of a price cut and a currency smoothing calculation. The market had feared a larger cut by Arla, which would have led the way for others.

Muller has dropped 1p/litre for February to 47p/litre, including its Advantage bonus, paid to the vast majority of its suppliers in quarterly instalments.  

Tesco’s Sustainable Dairy Group price also loses 1p/litre for February, taking its liquid standard litre (4% butterfat and 3.3% protein) to 47p/litre, while its Arla Direct Tesco supplier price falls by the same amount to total 46.75p/litre.

See also: Outlook 2023: new year to bring dairy profit challenge

Glanbia, South Caernarfon Creameries Co-op and Yew Tree Dairy have also all posted February price cuts.

Nevertheless, there have also been some notable holds, with First Milk committing to continue at 49.69p/litre for a manufacturing standard litre, including its member premium and regenerative farming bonus.

Cheesemaker Barber’s is holding its price at 50.02p/litre (4.2% butterfat and 3.4% protein) for the fourth consecutive month, while Saputo (formerly Dairy Crest) is sticking at 49.5p/litre for a standard manufacturing litre.  

Wholesale markets were falling as 2022 drew to a close, with butter down 10% in November, cream losing 16% of its value in the month, and skim milk powder 12%. Mild cheddar, down just 2%, was relatively steady.

This week’s New Zealand-based Global Dairy Trade auction was down 2.8% – the second fall in a row.

Production forecast

The latest AHDB Dairy forecast puts GB milk production at 12.44bn litres for 2022-23, up 0.7% on the previous milk year.

This is a rise of 175m litres on its previous figure, with autumn weather giving a late boost to grass growth. Combined with a favourable milk-to-feed price ratio, this provided a lift to production.

Deliveries of 3,032m litres from September to November were 2.5% higher than the same period last year, and 92m litres higher than the previous forecast.

AHDB lead analyst Patty Clayton said the market was not too badly balanced, but could tip either way.

“There is a question over whether milk production growth will continue,” she said, citing flooding in Australia and a difficult spring in New Zealand.

“With the EU, it is difficult to tell. At home, forage availability could hamper production.”

As the cost-of-living crisis continues, processors’ ability to gain price rises for their customers would be limited, said Mrs Clayton.

Looking to the 2023-24 season, AHDB Dairy is expecting production to remain above year-ago levels until October, and then run roughly in line with the five-year average to the end of December.

It puts production for the 2023 calendar year at 12.43bn litres, up 0.3% on 2022.

EU dairy outlook

The EU’s latest medium-term dairy outlook says sustainability will be the main driver shaping EU production in the next 10 years.

EU-27 milk production is expected to fall by 0.2% a year in the 10 years to 2032, mainly due to reductions in the milking herd as environmental concerns reduce the size and intensity of dairy farming.