Dairy market prospects improving

DAIRY market prospects are improving, raising hopes of better ex-farm prices.

Milk powder is leading the way, spurred on by strong demand in the recovering Asian and South American markets, says independent consultant Mike Bessey.

“Skimmed milk powder prices are going up weekly by several percent.”

Little will be available from Australia and New Zealand until October, and most European product is committed until mid-July.

And, in the year from July, new GATT rules prevent unused subsidies being carried forward.

US exports will be almost halved, to about 68,000t, predicts Mr Bessey, while EU shipments will fall by about a third to 270,000t.

“Any curb is likely to drive world prices even higher – at least until the autumn,” says Mr Bessey.

UK product is already worth more than 1500/t, nearly 20% above the intervention price that many processors budgeted for when calculating ex-farm prices a few months ago.

Butter values have also jumped since then. The UK price rose by about 200/t in May to almost 1900/t, nearing levels seen 12 months ago.

That reflects the lower than usual amount made, and growing demand on the Continent for private storage aid.

“This is all additional money in the hands of the processors,” says Mr Bessey.

“But whether they decide to share it with their farmer suppliers remains to be seen.”

Further support has come from rising intervention prices. A weaker Pound saw butter values rise 127/t during May to 1840/t, the highest level this year, the equivalent of about 2p/litre on the intervention milk price equivalent.

“If sustained, this has important implications for ex-farm prices, if only because much of the milk now being sold by co-ops and other groups is intervention-linked,” says Mr Bessey.

Prices in some Continental countries and in Ireland are already edging up.

However, dairy companies here say profits have been eroded by weak commodity values.

“The market also went down quite a bit recently, and has only now come back up,” says Dairy Crest chief executive John Houliston.

Although concerned about farmers financial problems, he says there is little his company can do in the short term.

“The market dictates the price we pay. It is fair to say that I think farmers are not being fairly rewarded.

“But the single thing affecting the market has been the strength of sterling, about which there is nothing we can do.”

However, he insists Dairy Crests value-added policy is already benefiting farmers, and support will grow.

“We already pay materially above the IMPE price. We are building the foundations of a healthy, long-term dairy industry.”

Axis, the midlands-based farmer co-op, views recent market developments with guarded optimism.

“It will be great news if sterling continues to weaken,” says a spokesman.

“One of the factors we use when setting prices is where intervention is going to be. We are seeing some improvement, but it follows a couple of bad months.”

Further, sustained movement is needed to ensure farmers benefit, he adds.