What a difference a few weeks make! While the start of the year saw dire warnings relating to volume levels and processing capacity, recent hot weather and its impact on grass growth and quality across the country has led to volumes plummeting and the spot price rising above the average farm gate milk prices for the first time this year.
‘Big range’ in milk prices
AHDB figures show that GB daily deliveries fell by an estimated 3.1% in June compared to the previous year and July looks to be even lower. It’s no wonder therefore that the spot price has risen to nearly 50ppl in response to this fall in volumes.
I would love to say that we have seen milk prices rise with similar elasticity – but, unfortunately, we are still seeing a big range in milk prices.
Some farmers are being paid well below cost of production in the mid-late 20s and others, mainly on aligned contracts, remain above 40ppl – the same marginal market spikes that drove the market down, must surely now push prices up.
Volume management schemes
To cope with the higher volumes of recent years, we are aware that a large number of balancing and volume management schemes have been introduced in dairy contracts across the country to try to ensure supply is linked with processable demand.
Many farmers recognised the importance of volume management and proactively worked with their milk buyer to reduce volumes whilst the price was dropping. However, as we see the spot price rise above core “A” litres, it is vital that milk buyers stick to the contractual terms they themselves developed and transparently demonstrate to suppliers how they are honouring agreed upon pricing schedules.
Merging of “B” and “C” litres into core volumes and using “B” and “C” litres for premium products whilst returning below-market-prices to dairy farmers is not acceptable, undermines trust and is something we know the new ASCA (Agricultural Supply Chain Adjudicator) will be watching closely.
Dairy farmers can find out more about their legal right to seek clarity on milk price changes by visiting: Understanding FDOM – price factors and disputes
“It is vital that milk buyers stick to the contractual terms they themselves developed and transparently demonstrate to suppliers how they are honouring agreed upon pricing schedules.”
NFU Dairy Board Chair Ian Harvey
Hot weather impact
The hot weather has also seen farmers starting to feed winter forage to cattle to maintain production and constituents.
While silage volumes and quality in the first half of the year have been strong, without rain over the next couple of weeks to help grass growth recovery, we could see shortages come winter.
Additional feeding over the summer will also be helping maintain milk volumes but this could create shortages later in the year.
Understanding the challenges
Over the last few months, since I was first elected as National Dairy Board chair, I have taken the time to speak with farmers and milk buyers across the country to understand the immediate and long-term challenges they are facing, their business intentions and how they are managing risk.
While the past year has undoubtedly been tough on many businesses right across the supply chain, I have been encouraged to see how farmers are working to shore up their resilience to the sort of long-term market volatility we have become accustomed to over the past decade, and even more so to hear of UK processor plans to invest in milk processing capacity.
Across the country, rough estimates indicate that there is nearly half a billion pounds worth of investment intentions that we are aware of over the next decade. While that will not help those being paid low prices right now, the confidence it indicates in the long-term future of UK milk production is heartening.
We know that globally the demand for milk continues to rise and, as one of the most sustainable places to produce milk in the world, the UK must ensure we are both well-invested and resilient enough to be the ones to meet it.
Paying tribute to David Barton
Finally, it was with a heavy heart I received the news of NFU Livestock Chair David Barton’s sudden death in late July.
David was a passionate advocate for the agricultural sector, a fierce defender of livestock farming – whose efforts have been recognised by farmers around the world – and a good friend. He will be greatly missed.
On behalf of the National Dairy Board, our thoughts, love and best wishes go out to his friends, loved ones and family.
