Tight supply underpins stable outlook for milk

The gap between dairy market returns and farmgate milk prices has narrowed slightly, as further milk price increases filtered through and commodity markets fell slightly.

DEFRA’s average milk price for September was 28.04p/litre, which was up 0.5p on the previous month. Meanwhile, the Market Price Equivalent slipped by 0.16p/litre last month to 29.54p/litre after falls in cream, butter and mild cheddar, Nick Holt-Martyn of The Dairy Group said.

But the MPE was still 1.25p/litre up on the year and with milk supply normally tightening at the end of the year, the market fundamentals for the rest of 2011 remained stable, he said.

“The supply side will tighten towards the end of the quota year helping to hold EU prices up through further tightening of cheese supply.

“If global GDP maintains its steady progress and the production growth is restrained by quotas in the EU and logistical/weather issues in New Zealand, then weaknesses in commodities may be limited and already factored into current pricing.”

Indeed, the latest Fonterra auction showed short-term commodity contracts rising and the Northern Ireland auction milk price had remained stable at 29.55p/litre as the tight seasonable supply continued, he added.

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