Milk Markets July 30, 2013 12:00 am Global Markets The benchmark Fonterra milk price index has started moving upwards again. After a series of price drops during May and early June, the index of commodities has risen for three auctions in a row. The mid-July sale saw values increase by an average of nearly 5% to $4,828 per tonne – nearly back to the all-time highs seen in the spring. Markets are said to be in reasonable balance. Demand remains strong, but there is a greater quantity of milk coming forwards – especially from the northern hemisphere where improving weather conditions are seeing output gradually recover after the problems of 2012 (see section below). UK Prices There has been fewer announcements of UK milk price rises in July than in recent months. This is probably because many previous increases took effect from the 1st July and processors are waiting to see which way the market goes before deciding on any further moves. Of course, formula prices change on a set timetable, so there are some movements to report. The Dairy Crest formula milk price will rise by 0.59ppl for August to 31.79ppl. This is mainly due to an increase in cream values in June as the hot weather led to a bumper soft fruit season. Going the other way, Arla Milk Link producers will see a small 0.07ppl cut from July. This is simply as a result of exchange rate movements and brings the standard litre to 31.84ppl. The only major non-formula announcement has been from First Milk. Following up its cheese price increases for July and August, it has announced a further 1ppl increase for September. This will take the price to 31ppl. First Milk’s liquid suppliers will also get an additional 0.2ppl from September. In terms of averages, the DEFRA June UK farmgate price stood at 30.77ppl. This is an all-time record and shows a 0.8ppl rise over the May figure. This year’s June price is 4.64ppl higher than the corresponding month in 2012. With the announcements of further price increases for July already made, plus seasonality changes, a further record price in July seems guaranteed. Production Trends After the awful 2013 and early 2013 conditions, UK milk production is slowly starting to recover. The latest RPA figures showing June production put output for the month at 1,173.0m litres (non-butterfat adjusted). Although this is13.1m litres less than June 2012 it is similar to both the 2011 and 2010 output figures. It was from July onwards last year that the weather really started to depress milk output. Therefore, this year’s production should start to overtake last year’s over the coming months. It seems unlikely that there will be a massive surge in output in the short-term with feed prices remaining high, and the warm weather limiting grass growth in some parts. With feed prices likely to reduce after harvest 2013, and more confidence in the dairy sector, the UK market may become better-supplied through the autumn. This increase in production is likely to be mirrored globally. US output has recovered after the drought of last year. New Zealand is gearing-up for a better year after its own drought problems in 2012. The EU Commission has forecast that overall production in Europe is likely to be similar in 2013 as it was in 2012, but there will be an upturn in 2014. All this suggests that global commodity prices may start to ease towards the end of this year.
