Milk prices improve, but outlook remains uncertain

Milk production is starting to ease back in the UK, and a few processors have increased their prices for July and August – so is the worst over? The answer, according to dairy commentator Chris Walkland, is: “Sort of.”

On the plus side, UK output has been tracking below last year since mid-April. However, this is from a very high base, while production in other exporting regions such as the EU, US and Oceania remains extremely strong.

“[Last winter’s] milk price cuts are having an impact on volumes, but it is still slow progress,” Mr Walkland told this week’s NMR/RABDF Gold Cup Open Day in Cornwall.

“We’ve also got the $1,800 [£1,359] calf scenario in the US in play: Farmers there are keeping every cow alive in order to have a calf to sell at a day old, and this is obviously boosting milk volumes.”

Some European dairy commodity markets have stabilised, while skimmed milk powder values have shot up since the start of the year, he added.

“But we’re going into the summer lull now and we’ve got high milk volumes facing off against low demand and full order books. It is not a good place to be.”

Price increases

Two processors to have increased their prices this month are Arla and Saputo – taking their prices to 37p/litre for July and August deliveries respectively – which could encourage others to follow suit, said Mr Walkland.

“Quite why, though, is a bit of a mystery. They are miles in front compared to other cheesemakers, and I don’t see the market supporting those prices,” he added.

Barber’s Cheesemakers has also announced a 1.55p/litre increase for its assured standard litre for August, taking it to 35.15p/litre – buoyed by strong exports to the US.

“The business strives to add value to milk to sustain milk supplies required for longer-term cheese availability,” said Michael Masters, head of milk supply operations at Barber’s Cheesemakers.

“Dairy market sentiment is still very much dominated by the continued strong milk supply levels across much of the EU, US and New Zealand,” he added.

“We hope that the recent heatwave across the EU will start to impact their milk supplies, and that markets will at the very least stabilise and improve.”

To avoid the massive volatility seen in recent years, Mr Walkland urged processors to try to find ways to control production more easily

“I know the expectation is that milk prices are increasing, and I understand the need for them to do so,” he said.

“But right now the prices for cream, butter, and cheese are going the opposite way and it is making it harder for processors to pay more. So I can’t see any major change to milk prices this year. Some improvements, but not major.”