Milk Market Update

This time of year is not normally a good time for milk price rises. In fact, history shows that there were no sizeable price increases (i.e 1ppl or more) at all between March and May in 2016, 2017, 2018 and 2019. More recent years have been more productive - there were six price rises in 2020, and five in 2021. But this year has outshone them all, happily, with 57 price rises already for the period! There are also six announced for June. So, what prices might you expect going forward? This isn’t the six-million-dollar question, but is it the 50ppl? That’s not looking likely at the moment, I don’t think – certainly not in the short-term. 45p is looking likely, with Freshways aiming for 45p for July, while stating 44p is currently guaranteed. Others are also going to be there or thereabouts. But 50p? That looks like a step too far, but I guess we shouldn’t rule anything out in this crazy world! But the facts are that commodity markets are dipping from their tops, and the higher prices go, the more of a glass ceiling comes into play where buyers (i.e the customers of the processors, not the milk processors themselves) do not see why farmers should get more than a certain level. At least that was my perception. Happily, though, the 40p glass ceiling has been totally shattered – not least because farm costs are at, or very near, to the prices being paid! I also thought May and June would see the pace and amount of milk price increases slow, and I think if Arla was not recruiting then we would have done. But it’s monster May increase, twinned with recruitment, means other processors have to follow. The main reason for the lack of price rises at this time of year, and my view they would slow this year, relates to the flush. Processors and customers of the processors believe that the flush will see plenty more milk coming in which will mitigate price increases. But I can’t see that happening now – least of all with the current dry weather. We haven’t had any decent rain that I know of in April at all. The ground is very dry, and this does not bode well for the forage season. And all of that is before the cost of fertiliser is factored in. In addition, the Milk Price: Feed Price Ratio is still well below the threshold at which farmers feed extra cake for extra milk. Then there’s the talk of livestock marts being pretty full of cattle, and farmers dropping cow numbers because of labour issues. It all means the pressure will be on volumes throughout this year. Elsewhere, milk volumes are still low, although the EU for February was up slightly. If we look at the forward prices from the futures or the GDT we can see that prices are returning around 45p now, and there is nothing that is pointing to 50p at the moment. Will prices get to that magic number? They might. Just not yet I don’t think. Much will be down to volumes after June and your cost of production. So even if it does you might not be much better off!

Chris Walkland

Dairy Market Analyst

The Walkland Partnership

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Working in collaboration with Chris Walkland, a specialist Dairy Market Analyst, our dairy and feeds market update looks at the latest pricing trends and offers analysis on how these have been influenced.

Prepared by Chris Walkland and Wynnstay Trading Department

MARKETS UPDATE

February 2021

Sentiment positive, but milk prices still slip back

Commodity prices in the EU and UK have responded to the positive sentiment and are up across the board over the last four weeks. Alas cream prices have not increased enough to take away the risk of price cuts from some middle ground liquid players, and two have cut their farmgate prices (Payne’s and Freshways) for February or March. Cream needs to get towards £1.50/kg to ensure stability in this sector, but it’s only £1.35/kg. Elsewhere, though, there is stability with cheese prices very strong, and actually gettng stronger. The MCVE value is over 30p after transport but before a processor margin, and it hasn’t been there since October 2018. I don’t expect any reductions in this sector, therefore, but nor do I expect increases either. Overall market sentiment is strong on the back of a buoyant GDT which is being fuelled by Chinese imports. But there’s also decent demand elsewhere, and reasonable milk volumes. Only the UK and EU fl ush are on the horizon that could put the dampers on this, depending on milk fl ows.

GB/UK milk volumes currently fl at

UK milk volumes in the fi rst three weeks of 2021 are tracking below late 2020 volumes, and are within 1% of previous year amounts. GB milk volumes are below last year, meaning Northern Ireland volumes are making up the diff erence. This is a generally positive situation for the market situation. 0.5% 1