Dairy Update July 29, 2014 12:00 am Commodity Prices It had seemed that global milk commodity prices might be stabilising, but the last month has seen further sharp falls in prices. The first Global Dairy Trade (GDT) auction of the month on the 1st July resulted in the average sale value of all products drop by 4.9%. This was followed by a further 8.9% fall on the 15th. The weighted average price now stands at $3,309 per tonne – 34% down on the high-point reached in February. All eyes will be on the next auction on the 5th August to see if the downwards trend can be halted. The weakness in markets is simply down to classic supply and demand factors. World milk output is strong – the IFCN Dairy Research Network estimates it is up by 3.3% year-on-year for the first half of 2014. At the same time, there is subdued buying interest – especially from the important Chinese market. Domestic Prices Spot prices are an imperfect guide to the strength of UK milk market as relatively little milk is traded in this way. However, they provide a useful indicator of whether there is adequate supply of milk. Prices had climbed to around 35ppl around a month ago despite high production. Demand has since weakened, and prices are reported to be back to around 25ppl. This illustrates that the domestic market is currently not short of milk – all helping to push prices downwards. Further price cuts by UK milk buyers have been announced in response to weak market conditions. Among these are; the Arla co-op price will drop by 0.94ppl from the 4th August to 31.58ppl. This is in addition to the 1.23ppl drop announced for July Dairy Crest is to reduce its price by 1.1ppl from the 1st September. This results in a Davidstow price of 32.09ppl and a liquid price only just over the thirty pence mark at 30.09ppl. Those on Dairy Crest formula contracts will see a minimal 0.04ppl reduction from the 1st August, giving a core liquid price of 31.98ppl. the Scottish liquid milk processor, Graham’s Dairies, is cutting it price by 0.75ppl to 30.75ppl from the 1st August also from the 1st August, Meadow Foods will pay its farmers 30ppl – 1ppl less than at present the Muller Wiseman non-aligned price falls by 1.2ppl as from 3rd August to 30.8ppl First Milk is cutting its liquid price by 1.75ppl (to 28.54ppl) and its manufacturing price by 1.25ppl (to 29.27ppl), both from 1st August Overall, the DEFRA average UK milk price for May stood at 32.55ppl – a drop of 0.71p on April. This price is still 2.56p above the average price in May 2013. However, the year-on-year increase is getting smaller. In February the average price was 3.84ppl above the corresponding month in 2013. Production UK production continues to hold up well, thanks to good weather and decent grass growing conditions. Daily deliveries in the fortnight to the 12th July were 7.4% higher than in the same two weeks in 2013. It was thought that the year-on-year increases would be getting smaller by this point in the year, as production took off in the summer of 2013 (Thus providing a higher base). As set out in our May article, the average yearly increase needed in 2014/15 to hit quota is a massive 11%. This still looks highly unlikely, although the high output is undoubtedly contributing to the price falls.
