Tight milk supplies could push farmgate prices higher this autumn

Milk production looks set to continue to decline this summer and autumn, fuelling speculation that tighter supplies will push farmgate prices higher.

Latest figures from the Rural Payments Agency show dairy farmers delivered 11.71bn litres to processors in June.

Adjusted for butterfat at an average of 3.92%, this rises to 11.8bn litres, 100m litres below the Charles Holt/ Farmers Weekly quota profile for the month and more than 10% below quota as the first quarter of the milk year ends.

Tight milk market

With producers struggling to manage the shift to summer feed contracts, a dearth of decent grass and poor weather forecast, there seems little prospect of any recovery in milk output in 2008.

John Allen of dairy consultant Kite said that although some were prepared to be bullish about prospects, the figures suggested a tight milk market this autumn.

“We need to analyse further and watch carefully where milk prices will go this autumn. The milk price: feed price ratio has altered significantly. Last year one litre of milk would buy 1.5kg of cake. It will only buy 1.2kg today.”

Increase of output

Dairy farmers had chosen to ease back on compound feed use in favour of grass but growth had been later than usual this spring, he said. “A lot of people came of winter cake contracts at £150/t and onto summer cake at £210/t.”

Current milk prices were unlikely to incentivise many producers to increase output and milk processors would be under pressure to secure retailers’ supplies.

Quota broker Ian Potter reckoned there was “zero chance” of production increasing or even levelling out. “Anyone who believes the current milk price will encourage dairy farmers to increase production is not in the real world.”