Milk price to fall as Marque settles?

24 March 1999

Milk price to fall as Marque settles?

By FWi staff
MILK prices could fall following Milk Marques announcement that it has cleared over 90% of the 12.8 million litres a day it has on offer from April.

The news for British dairy producers is not good, and every expectation is that prices will have to come down, according to dairy industry analysts.

Milk Marque refused to disclose the price of the milk it sold, following the failure of its second selling round earlier this month.

But most of the sales will have been done below the 20.5ppl initially offered to the trade, said Mike Bessey, an independent industry consultant.

“Hearsay evidence suggests prices being fixed at about 19.5ppl, though its impossible to verify these reports,” he said.

“What is clear, farm gate prices will have to go down.”

Apart from the strength of Sterling, Mr Bessey points to the weakness of the commodity markets and the likely glut of milk in the coming months.

In Europe, butter intervention stores have opened as low prices trigger the start of support buying.

Skimmed milk powder is also being intervened, and a lack of third-country exports has led to whole milk powder weakening.

This weakness is mirrored in the UK, where the problem could be exacerbated by extra milk from April onwards.

With dairy farmers struggling to make national quota, herds will go into the new milk year running flat out.

Jim Begg, director general of the Dairy Industry Federation (DIF), said he welcomed the fact that contracts had now been settled for this milk.

Milk Marque should be happy with the prices it has achieved given that the market for milk had fallen throughout the selling process, he said.

Both the DIF and Milk Marque agree that a new system is needed in time for the next selling round in the summer.

But this depends on the timing and findings of the Monopolies and Mergers Commission inquiry, currently being studied by trade ministers.

In the meantime, dairy farmers are expected to continue combating low milk prices by expanding their herds, according to consultants Axient.

Average herd numbers rose to 123 cows in January compared with 117 cows a year before, according to Axients latest Milkminder figures.

Over the same period, milk prices fell by more than 5% to 19.27ppl.

Statistics from the animal feed company J. Bibby Agriculture reveal a similar trend.

The best herds are putting ever more distance between themselves and the average, said the firms Duncan Rose.

The difference in margin over purchased feed between the top 10% and the top half was £160/cow in 1998, compared with £116/cow five years ago.

“These figures clearly show that yield generates margin,” he said.

“More yield means more income – and provided it is achieved without increasing fixed costs it will mean more profit too.”

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