"This was another good auction result for United members," said David Dobbin, the United Group chief executive.
"United has now sold all its milk supplies for the remainder of 2007 at prices close to or above 30 pence per litre. This will ensure good prices for our members in the run-in to the New Year.
"Our base prices will continue to move up, even though auction prices are now falling, because of the time lag between the sale of the milk in the auction and the payment for that milk to our members.
"As expected, the average price in the latest auction was below the exceptionally high levels seen in recent months, but was still almost 10 pence ahead of the same auction last year.
"At this time of the year, auction prices normally fall as the volume of milk available for sale rises as we move away from the autumn trough in milk supply and closer to the spring peak. In this month's auction 44 million litres of milk were sold for delivery in December, January and February - 60 per cent more than was sold in the record auction three months ago."
Mr Dobbin said that while markets remained firm, the increasing milk supply was coinciding with a gradual weakening in dairy markets. "Prices for both powder and butter are moving down. The impact of the fall in powder prices is evident in the price the Irish Dairy Board pays processors for skimmed milk powder: this has been cut by E500 per tonne in the past month – equivalent to around four pence per litre of milk. Cheddar cheese prices have also passed their peak and have fallen slightly in recent weeks,'' he said.
"Commodity prices in the EU have moved ahead of world prices, partly because realisations from international markets are being depressed by the further strengthening of sterling against the US Dollar. Combined with the removal of export refunds, the current record high exchange rate of about 2.08 Dollars to the Pound is making exports outside the EU very difficult.
"For farmers the improved milk prices are welcome and much needed, but processors are experiencing real difficulty, with record raw high milk prices at a time when commodity markets are softening and retail markets are still playing catch up with the changed situation. The auction system has fully reflected the recent strength in dairy markets; however, this has meant that local processors are generally paying more for their raw milk supplies than processors elsewhere in Europe. As a result United members received up to nine pence per litre more for their September milk supplies than the lowest prices paid to their counterparts in GB," added Dr Dobbin.
In the auction a total of 44 million litres of milk were sold. Of this, 39 million litres were sold on 3-month contracts for delivery in the period from December 2007 to February 2008 at an average price of 29.58 pence per litre. The remaining five million litres were sold on one-month contracts for delivery in December at an average price of 29.61 pence per litre. The overall auction average was 29.58 pence per litre, compared to an average of 32.39 pence in last month's auction and 19.87 pence in the auction in November last year.
The Ulster Farmers' Union has indicated that the softening of prices paid at Thursday's auction was expected.
"Markets are now re-aligning themselves," a Union spokesman added.
"A case in point is the recent reduction in Irish Dairy Board prices. However, auction returns are still a full 10 pence per litre ahead of where they were this time last year. So there is absolutely no need to panic. The milk sold at this week's auction relates to production in January and February 2008. This is a time of year when output starts to rise. So when account is taken of all these factors, one has to conclude that the outlook for dairy farming in Northern Ireland remains reasonably buoyant."
Responding to the results of this week's United Dairy Farmers' milk auction, Farmers for Action Northern Ireland co-ordinator, William Taylor, told Farming Life that 30.45 pence per litre was now the true, breakeven price for milk.
"This is a figure produced by the European Milk Board and takes account all of all the costs incurred by dairy farmers," he added.
"When milk prices are bad, local milk producers will seek to increase production as a means of improving their situation. But given the prevailing circumstances, a strong case can now be made for Europe to cut its milk production by two per cent in order to maintain farm gate returns. Locally, farmers should seek to cull those less productive cows that are not making an economic contribution to their business. I also know that a lot of young people are seeking to both get into milk and to expand the size of their existing herds. This is to be welcomed. However, I would urge these people to seek additional stock from farmers who are either down sizing their businesses or getting out of milk altogether."