Market soars, but will milk prices hit 30p?

It’s five months since my last article. And what a five months it has been! Back in November we were in lockdown again, Brexit uncertainty was enormous, and the cream price was below the important £1.50/kg threshold that lends some support to liquid prices. We also had Christmas to contend with, which can have a destabilising effect on the market.

By CHRIS WALKLAND
Walkland Partnership

milk

Many farmers will have seen the astonishing increase in the GDT in early March on the back of significant Chinese demand, which propelled prices to near record levels.

EU prices reacted immediately and increased on both the real market and on the futures. However, the GDT dipped back at the second auction of the month, deflating some of the over-heating sentiment.

Nevertheless, the EU prices of butter and SMP equate to a farmgate price of just under 31p.

Before Christmas the prices were delivering under 27p. Happily for liquid processors the cream price is now well over the £1.50/kg threshold, even climbing towards £1.60/kg.

So, what are the prospects from now on? Well, the good news is that the market is still positive, with milk volumes in the EU continuing to track below last year, at the same time as demand is good. There should be milk price increases…but when?

The answer is not yet probably (aside from Arla)! If we analyse the payment records of the top eight processors in the South West for the last five years and look back at when price changes happen, we see that:

  • no processor increased their price by more than 1ppl between March and May (Arla’s move this year is the first), and it only happened in four months by more than 0.5ppl);
  • there was only one positive monthly price move over 1ppl between April to June (and that was Arla too);
  • only when we get past June, and the flush, do processors really open the coffers – between June and August there have been 14 positive increases of over 1ppl, and 28 between 0.5p and 1p;

Main South West Processors Timing of Milk Price increases – 2015 to 2020
(No. of months with a positive monthly price movement by all major processors)

chart

This reluctance is undoubtedly because of the flush, and the fact that UK processing capacity is maxed-out. Processors don’t want to do anything to stimulate more milk until it is over, including paying more!

That said I think this year will be different and increases will come through in May or more likely June. How much they will be is the next question. Well at current levels both the real and the futures market points to prices around or over 30p for a standard litre at 4% butterfat, 3.3% protein (Arla is over that already). But it doesn’t mean you’ll get it, as most non-aligned prices rarely do top 30p. The last time was Q4 2017.

Retailers in particular will fiercely resist cheese price increases and long-term contracts mean changes happen over several months, not weeks. But whey is a great price now at over €1000/t, which will help. Whey is rarely over that threshold!

For normal liquid processors (i.e., not ‘niche/elite’ ones like Rodda’s and Crediton Dairy) the cream price needs to be a bit higher yet for a 30p milk price, I’d say. In Q4 2017, for example, it was over £2.00/kg. It doesn’t need to be that high, though, but several pence stronger yet!

CMC Team

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