Dairy Update March 26, 2015 12:00 am Global Markets The GDT auction price took a substantial step backwards at the latest sale on the 17th March. After six consecutive rises had taken the weighted average price to $3,374 per tonne at the start of March, prices fell back by 8.8%. This is despite the volumes being offered through the auction being at low levels. This has somewhat tempered the optimism that global milk commodity values had turned a corner. The respected forecasters at Rabobank are stating that there will be only ‘modest upwards price pressure’ in the second half of the year. Milk production is still growing strongly in the US. Low prices mean that production in the EU is not expected to balloon with the end of quotas, but the EU Commission still expects growth of 1.2% (compared to 4.5% last year). Fundamentally, there appears to be plenty of milk around the world. Whilst the Chinese are buying greater volumes than in recent months, supply is still running ahead of demand. A quick rebound in milk prices seems unlikely. UK Production February’s milk deliveries were down 2% compared to the same month last year. This is the first time there has been a year-on-year decline in monthly deliveries since June 2013 (20 months ago). This long surge in production has resulted in a glut of milk and has had a consequent effect on prices. It seems that farmers are now responding to low prices by trimming back on the marginal litres. UK Prices It seems a while since it was possible to announce a farmgate milk price increase by one of the major UK processors. However, Arla has announced that its members will receive an extra 0.83ppl as from 30th March to take the standard litre to 25.80ppl. The rise is a result of a 1.5 € cent uplift for all co-op members (perhaps partly prompted by recent increases by its rival Friesland Campina). The full benefit of the € increase will not be felt by UK farmers however, as Sterling’s strength has offset some of the gain. First Milk has announced its ‘A’ and ‘B’ prices effective from 1st April 2015 (see last month’s article). The ‘A’ price will be 20.87ppl for its manufacturing pool and 20.5ppl for its balancing pool. The ‘B’ price will be fixed at the end of April but will range between 16ppl and 18ppl. Farmers supplying Tesco under the TSDG contract will see their milk price reduce by 1.08ppl to 30.43ppl as from 1st May. Those on the costings system will continue to gain an extra 0.5ppl. The fall in price is largely due to reducing feed costs. Joseph Heler is reducing its milk price by 1.42ppl as from 1st April. The DEFRA GB average milk price for January was 27.01ppl. This is some 20% lower than the same month last year. With further price cuts enacted for February and March, the year-end price could be close to 25ppl. Company News The sale of Dairy Crest’s (DC) liquid milk division to Muller seems likely to progress. The European Commission has referred it back to the UK Competition and Markets Authority to make the final decision. The CMA is expected to approve the deal (perhaps with some minor conditions). The troubled co-op First Milk has got a new Chief Executive. Mike Gallacher joins the business from Mars Petcare. He replaces Kate Allum. Dairy Strategies Both the Welsh and Scottish Governments have published strategies for the dairy sector this month. The Welsh one can be found at http://gov.wales/topics/environmentcountryside/farmingandcountryside/farmcountrypublicationindex/independent-review-dairy-sector/?lang=en. The Scottish one is at – http://www.gov.scot/Topics/farmingrural/Agriculture/Livestock/Dairy/SDP2015. More details are outlined in the separate article. Goodbye Quotas On the 31st March milk quotas will cease in the EU. Introduced in 1984 to control the notorious ‘milk lakes’, they have been a significant feature in the dairy landscape. The last time the UK was over quota was in the 2003/04 milk year. With extra quota being allocated the UK has been significantly short in recent years. However, many other countries around Europe continued to be constrained by milk quotas – such as Ireland, Germany and the Netherlands. In fact ar9ound 12 countries are expected to pay a record €460m of super-levy for the 2014/15 year – as many nations revved-up production in the face of high prices and the prospect of quotas ending. The EU has agreed to let Member States stage payments of super-levy fines for 2014/15 over three years. With prices having fallen, then there may not actually be much of a further increase in 2015/16 (see section above), but over the medium term, we must expect extra milk production in Europe as a result of the abolition of quotas. This will weight heavily on prices unless new export markets are exploited.
