Dairy Roundup April 14, 2016 12:00 am Markets and Prices The latest Global Dairy Trade auction posted a 2.1% increase in its Index price on the 5th April. Whilst at least moving in the right direction, it does not signify any major turnaround in markets. The respected agricultural analysts at Rabobank now believe that an upwards move in milk markets will only commence in 2017. The New Zealand processor Westland told its farmers recently that they should expect ‘another two seasons’ of low prices. The fundamental problem remains too much supply and too little demand. Global milk production is not slowing appreciably, and demand remains weak due to economic uncertainty. UK Prices A stir has been caused by the DEFRA February average farmgate milk price. This showed average UK prices rising 2.48ppl compared to January to be 25.57ppl for the month. The uplift is largely attributable to one-off retrospective bonus payments (particularly Arla’s 13th payment) which were paid in February. The industry believes this gives a false impression of milk prices when, in fact, markets are continuing to fall. AHDB Dairy has reworked the figureswithout bonus payments. This gives a (more likely) figure of 22.93ppl for February – a 0.16ppl fall on January’s rate. The ‘big two’ milk processors in the UK have announced further price cuts; Arla has cut its members’ price by 0.94ppl as from 1st April down to 20.9ppl. 0.75ppl of the cut is related to the market, with the remainder due to exchange rate movements. following price cuts for the 1st April, Muller has announced a further reduction as from the 1st May. Payments will drop by 0.85ppl. This means that Muller Milk Group suppliers will receive 19.2ppl and former Dairy Crest suppliers will get 18.5ppl. According to the AHDB more than 70% of the contracts it features in its milk price league table have had price cuts announced for April or May. Free Range Milk A Free-Range Milk Marketing Board (FRMMB) was launched on the 4th April. This is looking to sign-up producers with the aim of developing the brand and potentially developing into a formal producer group that could supply and negotiate price for ‘free-range’ milk. At present there is no definition of the term. A rival organisation, ‘Free Range Dairy’ suggest that cows should be outside for 180 days and nights. Waitrose, although not using the term free-range, has committed that its own-brand milk should come from cows that are grazed for at least 100 days. Tesco Contracts As the market leader in terms of aligned contracts, the industry looks closely at what Tesco is paying its supplying farmers. Following the latest cost of production calculation the price for liquid milk will drop by 1.78ppl from 30.08ppl to 28.30ppl as from the 1st May. However, in the short-term, an additional 0.39ppl will be added to reflect a change in the calculation method. Tesco is also introducing a dedicated cheese contract. It had been trialling a cost-of-production cheese contract with Parkahm Farms for some time. However, the new contract will not be based on CoP, but instead pay a premium above the ‘going market rate’. A basket of prices paid by cheese producers will be collected, and Tesco will then pay an additional 2ppl above this. The uplift is partly to reflect the need to adhere to Tesco’s production standards. The ‘Tesco Cheese Group’ (TCG) will operate via Parkham Farms and First Milk’s Haverfordwest creamery. It covers the retailers own-label British mild, medium, mature and extra mature Cheddar as well as Red Leicester and Double Gloucester. Parkham Farms producers will move to the new system after a 12-months notice period. The 200 First Milk producers supplying Haverfordwest will receive a supplement from 17th April 2016, but there will be a dilution effect as not all of the plant’s output goes to Tesco. Over time it seems likely that a dedicated producer group will be set up, likely meaning that the bonus will be enjoyed by only around half of the suppliers.
