Tentative dairy markets hover around 50p/litre mark

Farmgate milk prices look set to stabilise this autumn, with a range of factors influencing markets, both in the UK and globally. Tight supply, volatile exchange rates, interest rates and high feed costs are all affecting trade.

The Global Dairy Trade online auction index fell by 3.5% at the latest sale on Tuesday 4 October to US$3,911/t (£3,419/t). This followed two consecutive rises and an earlier long falling run.

See also: Poor exchange rate limits Arla October milk price rise

There is a lot of uncertainty around the outlook for global dairy markets, with arguments both for markets to rise and to fall, said John Allen, managing partner at Kite Consulting.

“As we go into the first quarter of 2023, markets look as though they can hold, and that will give farmers confidence to start forward purchases of fertilisers and feeds,” he said.

Given the current uncertainty, the advice from Kite Consulting is to work out risk strategies across a range of areas, including feed, fertiliser, energy and interest rates. Higher on-farm costs mean producers are having to invest more capital into their businesses.

Tony Evans, senior dairy consultant at Andersons, said: “As a business, you are employing more capital and spending more money, so to get the same return and not go backwards you need to generate more profit, otherwise you don’t have a resilient operation.”

Many farms supplying the liquid market are reportedly looking to change milk buyers to move to a more solids-based contract, while manufacturing is proving a stronger market, buoyed by falling sterling and strong cheese exports. Margins on solids-based contracts have improved, and milk with good fat and protein levels is achieving 50p/litre or more, he said.

Advice for producers

Andy Dodd, farm business consultant at the Farm Consultancy Group, advised producers to watch interest rates and also keep an eye on cashflow.

He said: “A 1% increase in interest rates will add thousands a month to the cost of borrowing. A new cubicle shed built to high specification for 250 cows could cost £750,000. If that is all borrowed, a 1.5% interest rate increase is worth £11,250 or £937.50/month. Farms have become used to the ‘money is cheap’ era, but that looks to be over.”

Mr Dodd said regular monthly budgets and cashflows are more essential than ever to identify peaks and troughs in income. He added that those who do not borrow should not become complacent just because milk prices have improved.