Milk Prices

All the signals are now pointing towards the current strong milk prices remaining firm into the start of 2014.  Both supply pressure and demand is expected to increase as we head towards Christmas.   Most dairy commodity wholesale prices have risen or at least remained stable through July and August.  Both the AMPE (Actual Milk Price Equivalent) and MCVE (Milk for Cheese Value Equivalent) price increased in August to 39.5ppl and 38.6ppl respectively.  Although production is recovering, in the EU it is not expected to exceed domestic demand.  In the Southern Hemisphere, New Zealand is expecting a good production year as it moves into its peak period, but these volumes are not expected to affect the supply situation in the EU until the first quarter of 2014 at the earliest.

There has been a number of price rises announced during September, in particular the formula based prices;

• Those opting to supply Muller Wiseman on its formula based contract will see their price rise from 1^st October by 2.28ppl to 34.55ppl.  This price is calculated from the AMPE and CMVE price (see above) and it is therefore unsurprising that it has a large increase.  The processor has also announced a 1ppl price increase for its non-aligned suppliers as from 1^st October which takes the standard litre to 32.5ppl.  It has also stated that it expects the majority of suppliers to receive the 1ppl production incentive bonus at the end of this milk year
• Sainsburys has annouced a 1.97ppl increase for its direct suppliers on the cost tracker formula from 1^st October for three months.  This takes the standard litre price to 34.15ppl.  This is based on a rise in feed and fertiliser costs of 0.94ppl and 0.06ppl respectively and a fall in fuel costs of 0.13ppl; and
• Those on the Dairy Crest formula contract will receive a 0.153ppl increase from 1^st October taking its standard litre price to 32.08ppl

Tesco’s cost tracker producer price will be reviewed from 1^st November.  This will be interesting to see.  Unlike the Sainsbury formula which looks at retrospective costs, the Tesco one is based on forward estimates.  With input prices now falling (especially feed and fertiliser) the formula should perhaps result in a price cut.  A reduction in prices whilst most other contracts are moving in the opposite direction would be a difficult sell for Tesco.