For months now the NFU has been calling for milk buyers to pass back gains in the wholesale markets to their supplying farmers, many of which have endured months of milk prices well below the cost of production. From the evidence we can all see market signals are pointing skywards, and today we’ve seen the 4th positive GDT result in a row.
While we have seen some upward movements these have been slow and sporadic. Let’s take a look at the signals and what’s been happening.
The gap between UK farm prices and commodity prices is widening as we speak. Most forward price indicators (AMPE, MCVE, Futures, GDT etc) are showing prices should be between 25ppl and 30ppl at the moment. Yet most non-aligned prices are still at or around 20ppl. The July Defra average milk price, which included aligned prices was only 20.57ppl. To delve into the detail August’s AMPE (Actual Milk Price Equivalent) is calculated at 26ppl and the MCVE (Milk for Cheese equivalent) was 28ppl. We all know that markets have strengthened again since then.
To help better understand where your milk price should be it’s vital to understand your milk buyers product mix and customer base. Is your buyer willing to share this with you or your farmer representatives? Do you have an idea of how close to AMPE or MCVE your prices should be, or are there other indicators that could better showcase this? If so, have you asked your milk buyer why your prices are nowhere near the AHDB’s AMPE and MCVE prices? The data to inform and help you lobby is all available freely at AHDB Dairy - what we need to ensure is that our farmer representatives use them. I know that Dairy Crest Direct and Direct Milk POs share this information regularly with their members as well as using it in price negotiation meetings.
They may say there’s a delay, yes, but we’ve seen both market indicators strengthen month after month with little move at farmgate. How long can milk buyers sit behind the excuse of a time lag?
AHDB Dairy’s latest Forward Market Performance (FMP) indicator also paints a positive position for the supply/demand balance for the rest of the year. Even with the wholesale price increases over the past month, processors that trade on futures still believe demand will outstrip supply for the remainder of 2016. We’ve seen quotes for spot milk at over 40ppl.
Clearly milk buyers should be concerned as to where their future milk supply will come from. That’s why this week we’ve seen Dale Farm Northern Ireland encourage more milk supply for the next three months. Any extra litres supplied to the co-operative will receive an extra 4ppl on top of a 2ppl winter premium.
EU data shows an increase in cattle slaughterings across Europe, more and more dairy cattle are being put to beef semen and we’ve had a fair interest in the EU milk supply management scheme.
The message is clear – until milk buyers start paying fair, sustainable milk prices, volumes will not recover. Farmers have been patient, understanding the time lag that is part of dairy trade. That said, that reason is starting to wear thin, as we need to start considering increased costs of winter housing and feeding.
Our farmers have struggled through the deepest dairy downturn in years – they now deserve to be treated fairly by milk purchasers – milk purchasers that they trust will pass down market gains through the supply chain, not store for a future rainy day or for new promotional activities.