Global dairy prices plunge to worst on record

Dairy markets have taken another step away from recovery, after global prices fell heavily and British farmers’ returns were cut again.

Average prices on the Global Dairy Trade commodity auction, which sets the tone for world markets, fell 9.3% to US$1,815/t (£1,160/t) on Tuesday (4 August).

The tenth drop running at the fortnightly sale took returns to their lowest point since full records began in July 2008.

See also: First Milk farmers face another 0.5p/litre price knock

Prices for butter, buttermilk powder, rennet casein, skim milk powder and whole milk powder all slumped to seven-year lows.

Surging world milk supplies and sluggish Chinese demand have now wiped almost two-thirds off auction values since February 2014.

Reactions have been dramatic in New Zealand, where farmers’ returns are directly linked to the GDT.

Dairy co-op Fonterra, which buys most New Zealand milk, will this week announce its latest farmgate price forecast for the 2015-16 season on what has been dubbed “Black Friday”.

The latest GDT result would lead to a price of NZ$2.49/kg of milk solids (10p/litre), with one bank predicting Fonterra’s price to be NZ$3.50/kg of milk solids (14p/litre).

Most New Zealand farmers would lose money at those prices and one union has asked whether the auction could be suspended until the market improved.

In the UK, farmgate milk prices have continued to slide.

Last Friday (31 July), processor Dairy Crest dropped its liquid price by 1.4p/litre to 21.69p/litre, after six months of stability. But 400 farmers on the Davidstow contract had their price held at just more than 25p/litre.

Co-op First Milk issued further pain to their 1,200 producers, with all seven supply groups facing a 0.5p/litre cut.

First Milk’s A prices – paid on 80% of a farm’s average for that month in the past two years – will now range from 18.1p/litre for the Midlands and East Wales, up to 19.67p/litre for farmers in the Lake District and West Wales.

The B price for any extra milk has not been confirmed for July or August, but will take farmers’ payments even lower.

Several smaller buyers have also issued summer price drops, with Muller Wiseman set to announce its price late on Wednesday (5 August).

The NFU criticised processors for giving farmers short notice of price cuts. First Milk producers were told their August price just half a day before it came into effect.

“We understand the difficulties facing First Milk and other milk buyers, but our dairy farmers deserve and expect support and honesty during this market downturn, so I would urge all milk buyers to increase communication with suppliers,” said NFU dairy board vice-chairman Michael Oakes.

Market conditions that are keeping pressure on farmers’ prices show so sign of changing.

Latest milk production figures from the EU, USA, New Zealand and Australia all show year-on-year increases.

UK production is running 2.1% higher than 2014 levels and 8% up on the three-year average.

British wholesale cream, butter, powder and cheddar prices fell further in May.

The Dairy Group principal consultant Nick Holt-Martyn said the strong pound against the euro was an extra burden.

“Historically, sterling has been strong, which has made Irish imports more competitive and undermines UK cheese prices,” he said.

“In those distant days however, the liquid premium boosted the market.”