Milk Price Review Start of a slow recovery?

By Stephen Bates of Wye College
  • Click here for June 1998 milk price table, for May deliveries

  • THIS months Milk Price Review makes uncomfortable reading for producers. But amidst the pain, there is a little welcome relief for some dairy farmers and a hope that these milk prices may mark a low point and the start of a slow recovery.

    Farm-gate milk prices for our standard litre reach exceptionally low levels this month, partly due to seasonal price deductions, which are now at their maximum on many milk supply contracts.

    The Milk Group and Bodfari, for example, both have seasonal deductions of 3.5ppl, Express Dairies deduct 3.2ppl and most of the Scottish buyers deduct 3ppl. That pushes the non-seasonal milk contract prices surveyed to the top of this months table.

    The balance will be redressed as seasonal adjustments gradually become positive over the coming months. Perhaps more worrying is that deductions on milk cheques for May deliveries suggest the pain for dairy farmers is not yet over.

    Those deductions do, in part, show different companies make price changes at different times during the year. Unigate, for example, reduced its base price to 10ppl and its constituent rates to 1.08p a % for butterfat and 1.76p for protein from April 1998 deliveries.

    Some companies, such as Express Dairies and Bodfari, for their own contractual reasons, have made their deductions from May 1998 deliveries. Others, such as Golden Vale, have spread their price cut, making staged price deductions from February and then again from May 1998 deliveries.

    But amidst this gloom, Milk Marque has announced a profit distribution for the April 1997 to March 1998 milk year amounting to 0.016p a % of butterfat and 0.026p a % of protein. On our standard litre of 4.1% butterfat and 3.25% protein, this amounts to a year end payout of 0.15ppl, to be paid to supplying farmers with their July milk statements.

    In addition, Milk Marque will pay a bonus of 0.23ppl as a distribution of their redemption reserve, to be paid as preference shares in October 1998. Further, tax refunds equivalent to 0.1ppl will also be distributed to members before July 1, 2000.

    In total these (present and future) payments relating to the 1997/98 milk year add 0.48ppl to Milk Marques year-end price, taking it to 21.22ppl for milk collected every other day, or 20.72ppl for the minority of members on daily collection.

    Scottish Milk has also announced its year-end profit distribution, a flat payment of 0.45ppl, paid in June. This brings our final milk price for the 1997-98 milk year for Scottish Milk to 21.08ppl. These pay-outs are now reflected in the year-end price column of our table, helping to bring the range of prices shown for the year much closer together.

    Almost all milk supply contracts have moved away from “Milk Marque plus” price guarantees, and, with most companies shown still to be paying more than Milk Marque in the year-end price column of our table (albeit by a much reduced margin), there is little likelihood of other milk buyers matching Milk Marques year-end pay-out.

    Such pay-outs also help keep the pressure on other milk buyers. Yet despite this, farm-gate prices to dairy farmers must improve.

    Clearly much depends on the forthcoming Milk Marque selling round in July and on the strength of dairy product markets and the strength of the sterling. With the dairy co-ops and the main listed dairies recently announcing reasonable year-end results, there is some reason for hope that some of this will begin to filter, albeit tentatively, back to dairy farmers.

    New payments (values as p a %)
      Butterfat Protein
    Nestlé (Dalston) 2.055p (-0.107p) 3.394p (-0.175p)
    Nestlé (Scotland) 2.118p (-0.129p) 3.412p (-0.207p)
    Express Dairies 1.773p (-0.067p) 3.425p (-0.125p)
    Bodfari 2.054p (-0.096p) 3.363p (-0.157p)
    Golden Vale 2.167p (-0.113p) 2.946p (-0.294p)
    Midlands Co-op Base price drops to 20.225ppl (down 0.7p)

  • Improved milk prices achieved at the latest auction held by United Dairy Farmers in Northern Ireland, and better spot market prices elsewhere, provide hope for hard-pressed producers.

    The 79 million litres of milk on offer in the province was sold for an average price of 22.53ppl.

    A supply shortage is thought to be the main reason for the lift in prices, which are 17% higher than the March auction price and slightly above than last years level. “I am told the powder market had firmed a bit,” said a UDF spokesman. “And we did not get a very good milk peak in May; the predicted massive volumes never appeared. People were looking for milk.”

  • Milk Marque has confirmed it is pushing ahead with changes to the selling round in July to help firm prices after talks with the Dairy Industry Federation foundered.

    “Unfortunately it has not been possible to reach agreement with the DIF and time has now run out,” says managing director, Paul Beswick. Details will be announced early next month.

    Mike Bessey, dairy industry consultant, believes the upward trend in values could set the scene for higher prices in the July selling round.

    “I would have thought Milk Marque can be reasonably optimistic, though much depends on its tactics and how the DIF responds. And to some extent sterling is moving in the wrong direction, squeezing higher milk prices with a strong Pound is much more difficult.”

  • Click here for June 1998 milk price table, for May deliveries

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