Static cheese returns holding back milk prices

Cheese prices are lagging behind other dairy commodities, eroding hopes of average market returns reaching 30p/litre this year.

“While commodity returns, particularly skimmed milk powder, butter and cream, have held up well, cheese has been relatively static since the late winter,” said Nick Holt-Martyn from the Dairy Group.

“With the cheese sector a key component of the UK farm gate price, failure of cheese to follow commodities has held back the average UK market price.”

However, high SMP values had encouraged a shift away from cheese production, so supplies should soon fall, he said. “A tightening supply is always good for prices, as demand remains fairly stable, leading to an increase in market returns.” Global commodity values looked stable into early 2012, with Fonterra’s forward auction prices 10% higher than short-term contracts.

The Dairy Group’s Market Price Equivalent, based on average commodity values, increased by 0.5p/litre in September, to 29.53p/litre. Average farmgate values rose by 0.3p/litre in August, to 27.54p/litre. “The rolling milk price needs to increase by 1-2p/litre to show full market transmission.”

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