First Milk Cut Price Again

First Milk has announced a huge 3ppl price cut as from 1^st October for all of its suppliers.  The cut will be a massive blow to its members who have already received a number of cuts since the start of the milk year.  Over the last five months its liquid contracted producers have seen their price fall by 7.4ppl to a standard litre price of 25.1ppl.  Cheese contracted producers have seen their price drop by 6.4ppl to 26.1ppl.

The processor states that it is responding to market factors. Jim Paice, First Milk’s Chairman, says the company’s milk price is now ‘in line withmarket returns’.   Much of the co-op’s milk goes into milk powder and commodity cheese, so is very exposed to moves in global milk prices.  Therefore farmgate price cuts might be expected.  But the scale of the cut (on top of previous ones), does appear to have an element of panic to it.  This perception is not helped by the processer changing its payment terms – historically never a good sign of financial strength.  Questions are being asked about the future of the business. 

It is widely documented that production in the UK is plentiful this year.  This has also been replicated in Europe and in New Zealand, the major dairy exporter, meaning ample global supplies, coupled with a slowing down in demand from China and the Russia effect (see last month’s article) placing a strong downward pressure on the markets.  A number of processors have reacted by cutting prices, but how far markets will fall remains to be seen.  The EU Commission has stepped in by opening private storage aid.