Early signs of stability for milk prices despite volatile demand

Dairy farmers have faced cuts of 15p/litre to farmgate milk prices during the first half of the year, but with some processors holding prices for July and August, there is a smidgen of hope that prices may be starting to bottom out.

The UK’s largest dairy co-operative, Arla, made the decision to hold its farmgate milk price for the first time in July after six consecutive monthly falls.

Paul Savage, Arla UK’s agriculture director, said after a period of negativity, it was welcoming to see commodity markets recover and the outlook stabilising.

See also: Concerns for dairy farmers as milk price cuts cause losses

First Milk, Freshways and Wyke Farms all announced price holds into August.

Robert Craig, First Milk’s farmer director and vice-chairman, said: “While there continues to be uncertainty in the wider economy, dairy markets appear to be stabilising at present.”

Contraction in the dairy sector

It is “too little, too late” for some producers, with farmgate prices remaining below production costs and many having taken the decision to reduce numbers.

High cull cow prices have encouraged greater numbers to be sold through auction markets.

Dairy-sired cull cow prices were up 10% during May compared with the same month last year, averaging 172.56p/kg liveweight at UK auction markets.

Lots of herd dispersal sales have also been taking place around the UK, with more sales planned, especially in the South West. Many producers have already left the dairy sector, with 380 fewer producers in April this year than April 2022.

Further contraction within the UK dairy herd is expected and GB milk production is forecast to fall by 0.6% in the second half of 2023, according to industry figures.

UK daily milk deliveries were estimated by AHDB at 34.12m litres for the week ending 24 June, down 1.7% on the previous week and 0.5% below the same week last year.

High interest rates are also limiting plans for farmers looking to invest in their farm businesses or to expand.

Demand

UK wholesale prices were up on the previous month during June, with increased prices for butter, cream, skimmed milk powder and mild cheddar.

Milk market indicators, actual milk price equivalent (Ampe) and milk for cheese value equivalent (MCVE) both increased marginally during June to 32.66p/litre and 37.59p/litre, respectively.

However, wholesale dairy values fell 3.3% at the latest fortnightly Global Dairy Trade (GDT) auction on 4 July.

Dairy market analyst Chris Walkland said wholesale prices were better supported at the beginning of June, but had started to slip towards the end of the month and the results from the latest GDT auction are not good.

Looking forward, Mr Walkland said trade is likely to be quiet for a couple of months.

“I would think that we are probably near or at the bottom as far as commodities are concerned,” he added.

“But in terms of ‘are we definitely not going to see any more price cuts’, I don’t think anybody can rule that out.”