March Dairy Update April 18, 2013 12:00 am Dairy Crest Formula Formula milk pricing has moved out of dedicated supermarket supply sector into the ‘mainstream’ with the launch of a new Dairy Crest contract. This prices milk on a formula based on the value of bulk cream, the retail liquid milk price and input costs for feed, fuel and fertiliser. The formula will be used to calculate the milk price for its new non-aligned liquid contract from 1st April. Dairy Crest offered 100 million litres under the new contract to its Dairy Crest Direct suppliers on liquid contracts and farmers were able to apply to put in 25%, 50%, 75% or 100% of their milk into the scheme. The full volume was subscribed. The price for April is 29.95ppl this is 0.1ppl more than the standard Dairy Crest liquid milk price (source: milkprices.com.). Each month a new price will be re-calculated tracking the price information found on the DairyCo website. The formula is based on the following weighting; 50% feed price, 33% cream price, 10% fertiliser price, 5% red diesel price and 2% retail milk price. Those entering into the new contract will continue to be under the old 12 month termination notice and not the three months’ notice under the Voluntary Code of Practice. Many in the industry are congratulating Dairy Crest on their attempts to provide a transparent and fair pricing mechanism it remains to be seen how Dairy Crest fair under this new pricing mechanism especially as the pricing variables have little to do with how much Dairy Crest can get from its customers. Perhaps that is why it is limiting the new contract to100m litres, about one sixth of the total supply of non-aligned liquid milk pool. Meanwhile, Dairy Crest has retained its contract to supply Sainsbury’s with liquid milk from February 2014 for 3 years. It has also bought the ‘Proper Welsh Milk’ company which is based at the former DC butter/powder plant at Whitland in Carmarthenshire. DC closed the plant in 1994 and later sold it. Over £1m was invested in a new dairy in 2011 and employs around 40 people currently supplying local milk for retailers including M&S and Tesco. Supermarket Prices Both Tesco and Sainsbury have announced increases in their dedicated milk supply prices from the 1st April. Farmers supplying Tesco will see their standard litre price rise 1.19ppl to 32.77ppl. Sainsbury will pay its supplying farmers an additional 0.46ppl to achieve a figure of 32.05ppl. These still lag the gold standard of milk contracts from Marks and Spencer however. An increase of 1.32ppl takes its price to 33.5ppl. Global Markets Tight supplies in NZ due to drought conditions and increased demand from China have caused the Fonterra GDT auction price to surge this month. At the auction held on 19th March the average price for all products across all contracts increased by 14.8% to $4,683 per tonne compared to the last auction. NZ is the largest global exporter of dairy commodities. Reductions in milk supplies from the island other than seasonal will cause prices to rise. According to Rabobank demand from China is expected to remain strong for at least the next six months. Auction Ends Last month we reported that Northern Ireland co-op United Dairy Farmers (UDF) were having discussion with their main buyers over whether to cease its milk price auction. We can now report that the auction was cancelled last month. UDF has said there was increasing concerns by farmer members that the auction was delivering competitive prices especially at times of peak production. Other Moves Muller Wiseman Dairies has announced its recruitment and expansion incentive. A bonus will be available to both existing non-supermarket aligned suppliers and also new suppliers to the non-aligned pool. The bonus will be either 0.5ppl on all deliveries where the producer delivers the same or up to 2% more during the next milk year compared to the current, or 1ppl on all deliveries where supplies are more than 2% compared to the previous year. New suppliers who join on or after 1st April 2013, will receive a 1ppl bonus on all their deliveries for the first year. This will take the current February non-aligned standard litre price to 31.5ppl for a new supplier or for an existing supplier increasing production by over 2%.
