Tag: milk prices

GDT Auction & Farmgate Prices Fall

The GDT average index price fell by 1.2% at the auction held on 20th March to $3,632.  This follows a 0.6% drop in the event held on 6th March and is the third consecutive decline.

After seeing a 0.8% fall at the auction held at the beginning of March, the first drop in 2018 for WMP, the product actually saw a 0.1% increase at the latest event.  WMP made up over half of all the products sold, but SMP, contributing to a about a quarter of the products sold, was down by 8.6% compared to the event earlier in the month to $1,887.  However, this was perhaps more of a re-balancing exercise after the product rose by 5.5% at the previous event.  It is now back in line with February’s prices which averaged $1,882 per tonne.  At the beginning of March the EU Commission sold 4,337 tonnes of intervention SMP for only €1,100 per tonne, this is below the feed grade price of SMP and will do nothing to help current markets.  The Commission has around 380,000 tonnes still in stock.

Often seen as the bellwether for the dairy industry, the recent declines in the GDT will not support UK farmgate prices.  Further reductions have been announced, some of the more notable ones include:

  • Muller and Arla Direct contracted producers will both receive a 1.5ppl price cut as from 1st April.  This could mean Arla producers will be receiving the lowest GB farmgate milk price as from the beginning of next month.
  • Glanbia Cheese and suppliers to Belton Cheese will also see a 1.5ppl price cut, as will suppliers to Yew Tree Dairy and Joseph Heler Cheese
  • Dairy Crest Davidstow and Crediton Dairy have both announced a 1.25ppl reduction as from 1st April.

Arla Cuts Milk Price

Arla Foods has announced it will be cutting its milk price for its manufacturing litre by 2.16ppl from the 1st March, taking it to 27.11ppl.  This is a big drop and a significant blow to the industry – as one of the ‘big two’ processors Arla’s milk price tends to have a large influence across the sector.  Arla Foods amba board director, Jonnie Russell has cited the ‘dramatic falls’ in the commodity markets.  In addition, protein prices are now at an historical low after falling since the beginning of 2017.  The processor says it sees little prospect of recovery due to the large stocks held by the EU.  Although cheese and butter prices have started to pick back up again, it says the combined fat and protein is still lower than this time last year.

Other notable price drops for March include:

  • A 1ppl cut for Muller Direct milk suppliers. Taking their standard litre to 29.45ppl
  • First Milk has announced a 1.25ppl fall
  • A 0.75ppl cut for suppliers to South Caernarfon Creameries, bring their standard litre price to 28.32ppl
  • A 1ppl cut for Belton Farm suppliers. Taking their standard litre down to 27.26ppl

Average Farmgate prices and monthly production figures are all included in out monthly Key Farm Facts.

Milk Prices

Arla UK has announced it will be cutting its milk price by 1.73p per litre as from February 1st.  Other purchasers had already announced price cuts, see below, but many others are now likely to follow now that Arla has made its move.  Arla’s price cut means it is now bottom of the AHDB milk price league table.

Other price cuts include:

  • First Milk – 1p per litre cut as from 1st February
  • Muller’s Co-op Group – 0.52p per litre cut as from 1st February
  • Dairy Crest Davidstow – 0.75p per litre cut as from 1st March

In contrast Tesco’s cost tracker price has actually seen a 0.07p per litre increase as from February 1st.

 

Dairy Markets

Rising milk production in the EU and globally is putting downward pressure on the dairy markets.  Reports from AHDB dairy show that production from the five key exporting regions (EU28, Argentina, Australia, New Zealand and the US) in October were 4.1% higher year on year.  This was mainly due to an increase in production by the EU and NZ.  Estimated daily deliveries from the EU 28 were 5.2% more than for the same period in 2018, although it must be remembered this time last year production was falling due to the EU milk reduction scheme.

The GDT average price index did show a small increase of 0.4% at the auction held at the beginning of December, but this was the first rise since September.  It will be interesting to see the results of the second event in December (this was taking place as professional Update was going to press).  The downward pressure on the markets has led to some farmgate reductions being announced.  Following Muller’s announcement earlier in the month, as from January;

  • Meadow Foods will make a 1.25ppl reduction
  • Glanbia Cheese suppliers will receive a 1.5ppl cut
  • Sainsbury’s contracted suppliers will receive a 0.11ppl reduction, based on its cost tracker
  • Dairy Crest has said it will be holding its milk price until February.

Dairy Markets

The two GDT (Global Dairy Trade) auctions in November showed similar results, with the average index price falling 3.5% and 3.4% on the 7th and 21st November respectively.  This leaves the index at $2,970 per tonne.  This is the first time the price has dipped below $3,000 per tonne since October 2016.  At that point, prices were firmly on the up.  Now, there appears to be a downwards trend with prices falling for four auctions in a row.  New Zealand is currently in its peak production period and, although output this year hasn’t been as good as in 2016, deliveries are expected to show some improvement as the weather conditions improve, which probably explains part of the reason for the decrease.

With commodity prices seemingly under pressure, UK farmgate price increases are starting to slow with the market.  Arla has frozen its prices for November and the Muller direct November price is to remain the same for December.  Many of the other increases for November have been for less than 1ppl (see last month’s article).  Muller Tesco suppliers are the only ones to receive a price cut so far, decreasing by 0.13ppl. 

If wholesale prices continue to fall, farmgate prices will inevitably decrease.  However commodity prices seem to have fallen significantly without much of a change in market dynamics.  Milk production is higher compared with last year, but the EU’s Milk Production Reduction Scheme commenced this time in 2016.  In the UK, cumulative production for 2017/18 up to September stands at 7,323.6m litres.  This is 174.7m litres more than 2015/16 but 296m litres less than in 2015/16 and 79.8m litres less than at the same time in 2014/15.  Stocks, apart from SMP are also relatively stable and although they have fallen recently are still relatively high compared to historic levels.  It does appear though that buyers have seen production rising and are now waiting to see if prices fall any further.