Milk Production and Prices

UK milk production is following a similar pattern to previous years, but at a higher level than historically.  Production in November fell by 3.3% compared to October but is still 3.8% more compared to year earlier levels.  Average daily delivers for the fortnight up to 26^th December 2015 were 3.6% higher than the previous year at 38.7 million litres.  In New Zealand drought and poor prices have seen farmers increase cullings and the dairy herd has seen its first annual reduction in 10 years.  Around 300,000 dairy cows have been culled; about 6% of the national herd.  The forecast is for an annual reduction in milk production of about 3-6% for their current season which runs to May 2016. 

New Zealand exports about 95% of its milk and therefore has always had a substantial impact on global dairy markets.  Usually reports of increased cullings, droughts and a reduction in production would be reflected in market prices.  It is therefore interesting to see that the first Global Dairy Trade (GDT) auction of the year reported a fall in the overall price index of 1.6%.  Is the increase in the supply in  Europe, which shows little sign of abating, having more more of an impact now on global prices?

UK average farmgate prices fell in November.  Looking into 2016 there is little cheer; Arla has announced it will maintain its January co-op price, but its new exchange rate mechanism will see prices in the UK fall.  As the Arla Amba price is converted into Sterling using a 24 month rolling average exchange rate updated quarterly, the latest being December.  This has led to the Arla UK price falling by 2% or 0.43ppl.  First Milk has also announced cuts to its January milk price.  The Cambeltown, Arran, Lake District and Haverfordwest creamery pools and the Northern England balancing pool have all been reduced by 0.25ppl. The Scottish balancing pool price will fall by 0.18ppl.  However the Midlands balancing pool has remained the same once again.  Dairy Crest’s formula milk price will be reduced by 1.425ppl in January.  The formula price, arising from 5 parameters, actually resulted in a rise of 0.175ppl but the cut takes into account 1.6ppl as a result of of the re-basing which was agreed over a year ago.

Following its takeover of Dairy Crest’s liquid business at the end of the year, Muller Wiseman has changed its name.  It will now be known as Muller Milk and Ingredients.  The Dairy Crest Direct (DCD) Producer Organisation of farmers supplying DC is also having to change.  Those farming staying with DC and suppying Davidstow will continue to be members of DCD.  But those transfering to supply Muller will become part of a new Producer Orgnaisation called ‘Direct Milk’.