Falling milk prices will help curtail production

The stability of UK milk supplies will be helped by country’s processors putting the brakes on nine months of price increases as Europe enters its seasonal flush.

Farmgate milk prices have plateaued in the recent weeks, with processors either holding or reducing prices paid to farmers for May and June (see “Milk price movements”, below).

Increases between June 2016 and March 2017 saw the average UK farmgate price rise by 37.7% to 27.46p/litre, largely on the back of falling production.

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But with supply traditionally burgeoning during the impending flush, coupled with production rises for March of 9.2% in New Zealand and 1.7% in the US, it may appear a glut of milk is on the horizon.

The UK average milk price was unchanged between February and March, and recent dry weather will likely trigger a restrained flush on the continent according to a report from consultant The Dairy Group.

Despite the EU Commission predicting European production for this year would exceed 2016 by 0.6%, some of the continent’s main producers including Ireland, Germany, France and the Netherlands have all reported a restricted milk supply so far in 2017.

Cyclones Debbie and Cook

The strengthening of whole milk powder prices at the past two GDT auctions also indicated the battering inflicted by two cyclones on dairy producing regions in New Zealand will continue to disrupt production.

The likely outcome of this restrained supply would be a stabilisation of supply and markets through the summer months until the southern hemisphere start their new season, said principal consultant at The Dairy Group, Nick Holt-Martyn.

“The recent price adjustments by Arla and Dairy Crest should be the limit of the milk price fall,” he added.

Steady prices

UK farmgate milk prices should remain steady as tumbling skimmed milk powder (SMP) and cheddar values have been offset by climbing butter and cream prices, up 101.4% to £3,725/t and 116.3% to £1,730/t respectively in April 2017 compared with the 12 months previous, according to AHDB Dairy figures.

This stability could be disrupted by short-term volatility caused by significant EU SMP intervention stocks – currently at about 350,000t, and currency fluctuations, according to a report by Rabobank last month.