Cuts will lead to doubt across the milk market

Not so long ago, prospects for milk producers were looking up. But these cuts are serious and will leave many believing they can’t trust the market.

Events of the past 10 days have eclipsed the upbeat findings of DairyCo’s 2012 Farmer Intentions Survey – unveiled at the AHDB Outlook Conference on Wednesday (2 May). Conducted in March, the optimism uncovered by the survey has been replaced by a sombre mood.

The survey shows one in three British dairy farmers intended to expand milk production over the next two years – the highest proportion since 2008 and a vote of confidence in the outlook for both the industry and their own farm businesses.

Farmers intending to leave the industry in the next two years had also fallen to 7% – a marked contrast to the 22% when the survey was first carried out in 2004, and a drop from the 13% who said they were intending to leave last year.

But the global dairy market situation has changed in the few short weeks since the survey was undertaken. It’s a classic case of economics, with strong supply and weakening demand causing dairy wholesale prices to fall.

We have seen this translating through to farmgate prices, says DairyCo analyst Julie Macleod. So while farmers have given a vote of confidence for the medium-term outlook, British dairy producers face a challenging year.

Loss of confidence or not, two survey findings remain pertinent. High input costs and low milk prices were among the top threats pinpointed by farmers. Managing these issues are likely to be challenging for the foreseeable future.

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