Dairy farmers face losses as milk prices fall to 40p/litre

Heavy cuts by processors have pushed down milk prices by more than 10p/litre so far in 2023, with farmgate prices now at about 40p/litre and the prospect of more cuts to come.

An abundance of milk and weak wholesale markets has created a bearish outlook for dairy in the short term, with some forecasts suggesting prices could bottom out at about 35p/litre in May.

See also: More processors announce milk price cuts for May

Current industry cost of production estimates by Kite Consulting of about 42-43p/litre indicate that many producers will be operating at a loss, at least in the short term.

Milk supply has been consistently up so far this year. Great Britain milk deliveries were more than 200,000 litres a day higher for the week ending 25 March than the same week in 2022, and production will continue to rise until the annual spring peak, expected in late April.

Looking at demand, the actual milk price equivalent (Ampe), which is used as a market indicator for butter and skimmed milk powder, increased by just over 1p in March to 34.55p/litre, but is still down by 20p/litre on the same month last year.

Wholesale dairy values fell for the fourth consecutive time at the latest fortnightly Global Dairy Trade auction on 4 April, with the price index falling by 4.7% on the previous event.

Independent dairy market analyst Chris Walkland says prices are likely to stabilise at about 33-36p/litre in the next few months.

Mr Walkland believes that, with prices at these levels, there is little incentive for farmers to produce more milk and any rises in farmgate milk prices later in the year are likely to be driven by reduced supply.

In the longer term, prices are forecast to rise towards the end of the year.

What should producers do now?

With producers struggling to make a profit, Farmers Weekly spoke to John Allen of Kite Consulting for some tips on remaining resilient. He suggested:

• Producers should avoid a “knee-jerk reaction”, but should carry out analysis to determine their cash breakeven price for milk
• They should also consider whether it is still worth producing marginal litres or whether this is somewhere to cut back, especially for those on AB contracts with B litres related to commodity prices and offering little return.