Milk Link cuts its price to farmers
Milk Link cuts its price to farmers
By Robert Harris
MILK Link is cutting its April ex-farm milk payments by 1.68p/standard litre. It is the first of the big supply co-ops, which account for almost half the UKs dairy farmers, to announce a new milk year price.
The co-op wrote to its 2700 members last weekend, explaining that the market for milk had collapsed by 3-4p/litre over the past six months, due to high production levels, weak commodity markets across Europe and the strong £ sucking in cheap imports. Milk Link is now paying 3.45p/litre less than it was in November.
Farmers will receive 15.84p for a farmers weekly standard litre (4.1% butterfat, 3.3% protein, top hygiene bands supplying 1101 litres/day), and 16.44p/litre for every-other-day collection.
But seasonality deductions during the month will erode both sets of figures by a further 1.5p/litre.
May and June seasonality deductions (-2.2p/litre and -1.1p/litre) will also be hit hard, with little prospect of the base price improving. Milk Link says output has already risen to last years highest levels, with this years peak still several weeks away.
Arla has also written to suppliers, announcing a 2.3p/litre cut for April to June. This is the first change the company has made for a year, and equates to 18.19p/standard litre for daily collection (+0.16p for EODC), bringing it into line with rival processors.
Other major co-ops are expected to announce lower April prices soon. Assuming they settle on similar levels to Milk Link, this will mean farmers belonging to those co-ops can expect to receive about 2p/litre less than those on direct supply contracts for spring milk.
Promar International expects the annual average milk price for this milk year will fall to 17.3p/litre. Its draft Farm Business Accounts budget for 2002/2003, shows that this, combined with higher quota leasing prices, will cut profit on the average Promar-costed specialist dairy farm (146 cows yielding 7026 litres/year) by about two-thirds to £11,200 at the end the year. This will produce a cash deficit of £22,000 and a net worth decline of £9900.
John Warrington, Promar principal finance consultant, says: "Milk price will vary from year to year, but in the medium term will average out at 18.5p/litre."
Farmers must be able to operate successfully at this level, he adds. Promars budget shows the average FBA dairy farmer needs a minimum target profit of £17,500 to ensure medium-term viability. "This will simply enable the farm to maintain net worth, meet cash requirements and cover increasing repair costs, due to recent under-investment."
Producers must identify their cost structure and set profit targets based on up-to-date physical and financial management records, says Mr Warrington. This will allow farmers to benchmark their businesses against industry standards and to highlight key areas for attention.
Those leasing more than 20-25% of quota will be vulnerable to market swings, he says. Farmers should consider buying or forward leasing. It may also be a good time to restructure loans, given low interest rates, he adds.
• For on-farm cost-cutting measures – see Livestock, p39. *