Milk Production & Prices

The latest figures from the RPA reveal UK milk production for September remains ahead of year earlier levels.  Monthly output has now been better than last year for three consecutive months and cumulative production for the year has overtaken 2012’s for the first time.  Production for September stood at 1,061.8 million litres nearly 6.5% more than for the same month in 2012.   Cumulative figures for the year stand at 6,844.1 million litres compared to 6,818.0 million litres at the same point last year.  This years’ production is now 1% up on the previous five year average of 6,775.0 million litres.

Production elsewhere is also looking good.  In Europe, deliveries have increased over the summer months in France, Germany, Netherlands, Poland and Ireland.  Globally, New Zealand saw production rise by over 9% in August after being 6.9% and 5.1% down in June and July respectively, although production in Australia is reported to be lower.  This increase in supply is putting pressure on prices.  In the UK, spot prices have fallen marginally to below 38ppl, but are still seasonably high and are expected to increase again as we lead up to Christmas.  Demand in the commodity market remains strong, helping to keep prices stable as production increases.

Once again there have been a number of price changes to take effect from 1^st November.  Perhaps one of the most notable is the Tesco Costtracker formula-based price.  As from the beginning of next month this will rise by 1.02ppl.  This is calculated from their Promar Costtracker formula, based on a 0.54ppl increase in costs and 0.48ppl due to lower volumes in milk, taking the standard litre to 33.79ppl for those who do the Promar costings and 33.29ppl for those which don’t.  Last month we reported that the Tesco price is based on forward estimates and costs.  The cost of feed has been falling and is not expected to increase over the next three months, similarly milk volumes are on the increase.  We also said it would be interesting to see if Tesco cuts its price when others were all increasing.  Add into the mix the decision Arla-Tesco direct suppliers have to make as to whether to leave the supermarket’s direct supply milk pool and join the Arla amba co-op.  It doesn’t quite seem to stack up, especially when the Dairy Crest cost of production linked contract is being reduced as from 1^st November (see below); perhaps there has been some poetic licence in the formula under the circumstances?

Other Milk price changes from 1st November  include:

• 0.5ppl increase for suppliers of South Caernarfon Ltd 
• 1ppl increase for Arla direct suppliers and 1.5ppl increase for members of Arla Foods Milk Partnership Ltd (AFMP)
• 1.5ppl increase for United Dairy Farmers members
• 1.44ppl price cut to the Dairy Crest Direct Formula milk price.  The cut is due mainly to a reduction in feed costs in September, although partly offset by an increase in the value of cream, retail price of milk and diesel.