Spot milk prices on rise as market tightens

The spot price of milk has shot up from an estimated 34-37p/litre in mid-September to well over 40p/litre.

Reports of prices paid in this spot market are quite anecdotal, with the volumes traded each week representing a relatively small proportion of the overall milk pool.

But Ian Potter, of Ian Potter Marketing Services, has reported that spot milk is currently extremely scarce with processors offering 41p/litre or more, but still struggling to secure supply at that level.

See also: Read the latest on dairy markets and prices

Speaking on Kite Consulting’s weekly podcast, dairy commentator Chris Walkland said he had heard reports of prices as high as 47p/litre, although he added that not much milk was being traded at that level.

Logistical issues

Patty Clayton, lead dairy analyst at AHDB, said the high spot prices were probably a symptom of a tight market and logistical issues.

“There is probably a combination of factors playing into why spot markets are going up,” she said.

“One of which is that the milk may be in the wrong place and there aren’t sufficient lorry drivers to get it to where it needs to be, so those that need it will need to bid up to incentivise someone enough to get a driver.

“There are also some processors who are starting to feed back into the food service sector, where demand is starting to build up, and they need to boost their own milk supply by going to the spot market.

“We were also 2% down on production in the week ending 2 October and we have been down year-on-year since the beginning of September, so there is some tightness in the milk supply, too.”

Ms Clayton said the prices were indicative that the market was tight, but whether that led to farmgate prices increases would depend on whether it was sustained and on what happens to wholesale prices for dairy commodities.

“How [high spot prices] feed through to farmgate prices will depend on input prices and revenues from the wholesale market, rather than the spot market,” she said.

Price increase

Nick Holt-Martyn, consultant with The Dairy Group, said he was hopeful farmers would continue to see increases in farmgate prices over the next few months.

“Supply is slightly lower than where we would expect it to be at this time of year, although there is no shortage of milk.

“We are looking at a relatively low-production winter, which will keep the market firm and prices will rise.”

Mr Holt Martyn expected further rises in the next two months. “With a bit of luck we will get to the 35p/litre mark, which is justified based on the costs of production.”