Milk price cut warning as MM selling starts
By Philip Clarke
MILK producers are being warned to brace themselves for another cut in prices this October, after the launch this week of Milk Marques delayed summer selling round.
Initially it was intended to conduct the bi-annual round as a series of one-to-one negotiations with buyers, as occurred earlier this year. But publication of the Monopolies and Mergers Comm-ission report in July – which attacked Milk Marques selling practices – changed all that.
"We did not want to engage in practices which had just been severely criticised," said Dairy Industry Federation director general, Jim Begg. "So we talked to Milk Marque and both agreed to go back to the Jan 1997 system, as this was the one which was least criticised by the MMC report."
Although this is just a one-off – a new selling system must be devised before the year-end – Milk Marque accepts this is the best way forward. "The process sees a return to previous contract types, except that, in line with normal commercial practice, details of prices and contract volumes will not be published," said a statement.
But it did admit that the prices it had proposed (for supplies from Oct 1) "reflect the realities of the current market-place, which continues to show the effects of the strong £ and weak demand for dairy products".
FW understands from trade sources that the lowest-priced "residual" contract relates again to the so-called Intervention Milk Price Equivalent (IMPE). This stands at fractionally over 18p/litre.
With most large dairies already well covered by their direct supplies, the expectation is that most purchases will be made at this level, with little interest in the more expensive "premier" (20.2p/litre) and "ex-farm" (19.2p/litre) contracts.
Consultant Roger Metcalfe believes Milk Marques total realisation will be down to about 18.5p/ litre from October. Although no one knows for sure what it currently gets from the market, (since its last negotiations were behind closed doors), trade estimates are about 19.5-20p/litre.
That suggests producers should prepare for at least another 1p/litre drop this autumn, from their standard litre price of 18p/litre. "If you cant produce milk profitably for 16p/litre, then now is the time to take stock," said Mr Metcalfe.
As for volumes, Milk Marque is believed to be offering the trade about 12.7m litres a day, compared with 14.8m litres in the last selling round and 15.9m litres a year ago.
A spokesman was adamant that the selling process would be completed in one round, with all bids in by Sept 6. *