Farmgate milk prices have started to fall as supply has hit its highest point in a decade.
Milk production for the year to date has reached 5.5 billion litres, 217 million litres (5.2%) ahead of this time last year and 4.1% ahead of the five-year average, according to analysis from AHDB.
This is 110 million litres ahead of the next highest year and is by far the highest point seen in the past decade, despite some of the dryest conditions seen in the UK causing grass-growth issues, the levy board added.
In response, Freshways and Arla have both cut their farmgate prices by 6ppl and 1.7ppl respectively.
One farmer told The Grocer that the price decrease had been a “shock” and this was a “disaster” as he had been told that falls would continue until the end of the year.
Freshways said its significant decrease was due to supply far outweighing demand leading to “unprecedented” price decreases with values now £560/t lower than this month last year.
The dairy company’s MD, Bali Nijjar, said in communication to farmers that it “deeply appreciate[d] that such a drastic decrease may come to some as a shock but unfortunately continued increases in production will ultimately lead to supply far outweighing demand”.
“Our commitment to you being that as soon as markets respond positivity, that this will be reflected immediately in the milk price,” said Nijjar.
Arla’s headline price for conventional milk will now be 45.34ppl and organic has stayed the same at 57.95ppl, with the organic market looking stable.
The co-operative said that outlook was softening further from commodity markets “impacted by plenty of milk available, shifting the supply and demand balance”.
Shifting commodity prices
AHDB has predicted that there will be a fall in average farmgate milk price of 3.3ppl from 43.6 to 40.4ppl by December, with the possibility of more to come if commodity prices fall further.
“Milk supplies have been so buoyant due to an almost 20-year high in the milk to feed price ratio and record levels of compound feed have been produced and sold,” explained AHDB dairy analyst Susie Stannard. “But British dairy has been in a unique situation for the majority of this year.
“Ordinarily, such high milk supplies would build up supplies of dairy products and cause commodity markets to fall.”
But, she added a number of factors stopped this from happening, including a shortage of global milk supplies, strong seasonal demand for cream, which tightened butter production and stocks, and strong short-term export demand for Irish butter.
This had now changed with global milk supplies building and commodity stocks following suit. This has therefore put pressure on UK commodity prices.
“Farmers should ensure they are prepared for a period of tightening margins and are taking advantage of the current availability of lower priced feed by purchasing ahead where possible,” said Stannard.
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