Direct Milk formula price rises as dairy rebounds

A milk price that tracks costs and commodities has risen for the first time this year, in another sign of a fledgling dairy recovery.

The Direct Milk formula, open to the 650 ex-Dairy Crest farmers now supplying Muller, will increase 0.452p/litre in August.

Producers’ milk committed to the formula will be priced at 24.83p/litre – compared with 18-18.66p/litre on Muller’s normal contract, before the 2-3p/litre retailer bonus.

The tracker contract reflects steady improvements in dairy markets.

See also: 8 factors driving the dairy recovery

In June, the bulk cream price rose £240/t to £1,100/t, while the value of four prints of retail milk stayed flat at £1.

On the inputs side, concentrates crept up for the first time in a year and a half, along with red diesel prices. In June, ammonium nitrate hit a nine-year low, down £22.50/t on the month.

In a newsletter to farmers, Michael Masters, Direct Milk producer organisation secretary, said the Brexit-induced drop in the pound – which raises input costs – and falling milk supplies would continue to be the drivers.

“As concentrate values are also increasing, if these combined factors continue to be sustained at current rates, the transparency provided by the formula milk pricing mechanism will deliver additional increases in the coming months,” he said.

Drop in UK milk production

UK milk production has tightened significantly in the spring and earlier summer, which is finally supporting prices.

Deliveries in the two weeks to 25 June were 9.1% lower than the same period in 2015 and 4.3% down on the three-year average.

Market indicators have leapt month-on-month in June, with AMPE, which follows butter and powder, rising 2.1p/litre to 18.9p/litre and MCVE, which follows cheese and whey, up 3p/litre to 19.6p/litre.

This has started feeding through to the farmgate. First Milk revealed a half-a-penny price rise for July, Dairy Crest reversed a previously announced cut and Arla helds its rate in a “more stable” market – among other good news from processors.