Dairy Update – Mar ’14 March 27, 2014 12:00 am Milk Price Wars The big news in the dairy sector this month has been the outbreak of a new supermarket price war, with liquid milk being one of the main weapons. At the start of the month Tesco dropped the price of the benchmark 4 pint milk polybottle to £1. This matched the price that Aldi, Lidl and Asda had been selling at for some time. Morrisons and Sainsbury’s quickly matched the price cut. These are designed to be long-term price drops, rather than one-off promotions. The supermarkets state that producer prices will not be affected – they will pay for the price cut by reducing their margins. This may have to be the case whilst commodity prices and demand remain strong; cutting producer prices at the present time would simply see farmers defect to other buyers. However, the long-term effects, if milk markets weaken may be more profound. Global Auction Prices Values have dipped somewhat this month on the Fonterra milk auction. The average price fell 4% in the first event of the month and then by a further 5% during the second auction. The average price is now down to $4,439 per tonne compared to a high point of $5,025 in late January. Only time will tell whether this is a temporary dip, or the long-forecast correction in global commodity values. UK Milk Prices Arla will hold its members’ milk price at 35.01ppl for April – now unchanged for three months. This market-leading price from the co-op has put pressure on other milk buyers and there has been some reaction this month. Muller Wiseman has increased its non-aligned price by 1.1ppl to 33.6ppl. Dairy Crest has ‘rebased’ its formula pricing model on its first anniversary. This effectively increases the price paid from the 1st April to 32.75ppl. However, some of the other formula prices are still being pulled downwards by market factors. Sainsbury suppliers face a 0.56ppl price cut (to 33.16ppl) for the months of April, May and June. This is largely due to falling costs. Muller Wiseman’s formula price will fall by 1.62pp, to 33ppl from the 1st April. New Milk Plant Demonstrating confidence in the milk commodity market, a new butter and milk powder plant is being constructed in North West England. Operated by J B Woodcock and Sons (Yew Tree Dairy) at Skelmersdale in Lancashire, the facility will have around half the capacity of the Westbury plant in Wiltshire. It is designed to be operated on a seasonal basis to cope with production peaks.
