Record farm-gate milk prices in 2022 have fallen dramatically since the new year, with a series of cuts by major processors of late sending average prices plummeting.
The most recent Defra UK average milk price was 51.51 ppl in December. However, Kite Consulting’s analysis of recent price drops shows that the current average is around 45 people — down almost 12% in just over a month.
Amid a fall in commodity prices — fueled by lower demand and projections that global production could rise 1% through 2023 — the record prices that led to significant retail dairy price inflation last year now look like a record high .
Arla recently announced big cuts in February’s milk price of 2.65 percent to 46.57 percent for liquid producers, citing a drop in consumer demand after “persistently high inflation” prompted buyers to allocate their total spending reduce.
“As consumer demand falls, milk volumes in the commodity market continue to rise, pushing commodity prices further down,” said Arthur Fearnall, CEO of Arla Foods amba.
His comments echoed those of Müller, who just over a week ago said it would cut its March price for Müller Direct farmers by 3 ppl to 43, plus a quarterly premium of 1 ppl.
And many others, including First Milk, Saputo, Barbers and Freshways, have reduced their upcoming prices by at least 3 percentage points, according to Kite Consulting’s analysis, with First Milk’s Farmer Director and Vice Chairman Robert Craig pointing to a “weakening” of the indicated market sentiment.
“This has accelerated significantly since early January and we are now seeing market prices for dairy products drop week in and week out,” he said when announcing last week that the dairy co-op and cheesemaker would slash their March price by 4 percentage points, to 45.69 pers .
Up to 50% higher cheese prices in just two months
“We are also seeing what is probably the largest discrepancy ever between market prices and current farm gate milk prices,” added Craig. “We have been pleased to maintain the milk price up to this point, which provides some stability during the winter period, but we are not immune to market forces and while we are disappointing we have to adjust our milk price to reflect market movements. “
Those moves came even as dairy farmers continued to see the high input costs they saw last year, said John Allen, managing partner of Kite Consulting, with average production costs currently hovering around 44 percent.
He warned that “more was to come” in terms of price cuts – noting that futures markets are now pointing to average prices in the region of 30 percent for the second half of 2023.
But given how such cuts would likely push farmgate prices even further down, and how devastating they could be for farmers – who would likely be forced to cut production – he urged the mults to focus in the coming Time to resist big retail price cuts on the milk shelf months.
Some are already asking suppliers to cut prices based on the picture of the commodity market, he said.
“But if they want to ensure security of supply and avoid possible shortages later this year, they have to do something [to maintain the higher prices seen last year]’ Allen suggested.
Any further decline would have the potential to create shortages into September “if prices keep falling,” he added, echoing previous warnings.
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