Milk market uncertainty as Global Dairy Trade sees slight rise

Dairy markets have opened the new year nervously, with a slight boost in global prices but more pain at the farmgate.

The first 2015 Global Dairy Trade (GDT) auction, a key world benchmark, saw a 3.6% rise in average prices on Tuesday (6 January) – the second successive increase.

But the varying supplies of products on offer caused a spread of results, with the total amount sold back 5%. 

See also: First Milk delays milk payments by two weeks

Butter values jumped 13.2%, while cheddar was up just 3.2%, skim-milk powder rose 2.8% and whole-milk powder increased 1.6%.

British dairy companies blamed the sharp slide in global markets for the heavy drop in farmgate milk prices all last year.

Commodity risk manager Charlie Hyland, of trader FC Stone INTL, said the psychological impact of the GDT result was pulling up European prices in the middle of this week, particularly for butter.

“I do see some support in the market over the next couple of weeks, but how sustainable it is I have to question,” he said.

“We still have a lot of product, a lot of milk coming. There are no two ways about it: there is no big weather effect yet and I cannot see that is going to change. Demand from the likes of China has not picked up yet.”

Milk production across the world is still running up on last year, keeping markets well stocked.

UK daily deliveries in the two weeks to 27 December averaged 38m litres/day, 2.4% up on the year and 7.2% higher than the three-year average.

New Zealand dairy co-op Fonterra announced in mid-December that its members’ production in the 2014-15 season would be the same as the previous one despite already being 4% up on the year.

Pressure has continued at the UK farmgate, as First Milk last week announced it was cutting its February liquid and manufacturing prices.

Before Thursday’s (January 8) news of a payment delay, the co-op’s liquid suppliers faced a 1.6p/litre drop to 20.1p/litre, while the manufacturing price will slide 2.43p/litre to 20.47p/litre.

But this will be softened, and First Milk members will be paid 21.2p/litre and 20.57p/litre respectively.

First Milk chairman Sir Jim Paice MP said the company had told member meetings the market was likely to worsen before it improved.

“We do not know how long this current downturn will last, however our priority is to make the business and our manufacturing assets as secure as possible in order that we can continue to process and market every litre of members’ milk,” he said.

Farmers supplying smaller companies like Meadow Foods, Graham’s and Payne’s also face cuts.

But Muller Wiseman producers enjoyed some relief, as the firm froze its price at 25.9p/litre for February.

The firm’s managing director Carl Ravenhall said it could not rule out future price changes, due to further weakening of dairy commodity values.

Latest figures showed the number of dairy farmers in England and Wales fell by 27 to 9,960 over December.

Over the past year numbers are down 470 or 4.5%, meaning the decline has reached its fastest rate since April 2009.