Weak markets and high supply squeeze farmgate milk prices

High levels of supply and weakening wholesale demand are proving a risk to farmgate prices.

Processors are generally standing on at current prices into the new year, but on Wednesday 30 November, Freshways announced a hefty 3p/litre cut for January, taking its price to 47p/litre for a standard liquid litre of 4% butterfat and 3.3% protein.

Further falls are anticipated in the spring unless there is a significant shift in supply and demand.

GB daily milk deliveries were 3.4% higher on the year for the week ending 19 November, averaging 33.71m litres.

See also: Why the on-farm milk vending market has soared

This followed record high milk production in October.

Year-on-year milk production increases have also been seen in the EU.

Michael Masters, head of milk supply operations at Barbers Cheesemakers, said domestic markets had certainly eased, but demand remained for exports.

Both US and European markets for cheese exports were still very strong and growing, he said.

“UK cheesemakers are making the most of those opportunities, which they may not have done 10 years ago.”

Mr Masters added: “Cheese prices do still seem to be stronger than if you are just reliant on a UK liquid market in comparison.”

Dairy wholesale prices have fallen in November, with bulk cream, butter, skimmed milk powder and mild cheddar all dropping back on month-earlier levels.

Milk market indicators have started to fall, with both the actual milk price equivalent (Ampe) and milk for cheese value equivalent (MCVE) dropping in November.

These estimate market returns for different dairy products after processing costs but before delivery to the customer.

Ampe dropped 13% from 51.27p/litre in October to 44.69p/litre in November, while MCVE fell 3% to 52.2p/litre. Both were at 10-year highs in June this year.

Dairy market specialist Chris Walkland said commodity prices were crashing and milk prices would probably come down in February.

“The [farmgate] prices for December and January have effectively come from sales in September, October and November,” said Mr Walkland.

“There is a three-month lag between what prices were and the returns from that in milk price announcements, which is why prices aren’t coming down in December and January for most.”

Patty Clayton, AHDB lead dairy analyst said: “Market returns have stagnated in recent months, as milk supplies improved and demand has weakened.

“The rising cost of food and drink is changing consumer behaviours, and higher prices of dairy products are negatively impacting sales.

“This delicate balance between tight supplies and declining demand suggests some risk to farmgate prices going into 2023 in our view. Processors may find it difficult to negotiate further price increases to support the current high farmgate prices in the current economic environment.

However, Ms Clayton cautioned that high milk production costs meant any cut in milk prices could trigger lower production, particularly as yields will be more dependent on purchased feed than grazing.