Exchange rate changes boosting UK milk prices

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According to AHDB Dairy, the recent devaluation of Sterling against the Euro is having a positive impact on UK wholesale milk prices.

But even before the UK’s Brexit vote, exchange rates were offering some support to dairy markets going back to the beginning of 2016, although – at that stage - this wasn’t enough to offset the global deterioration in prices.

The level of exchange rate support was improved in July, following the June 23rd poll, when Sterling weakened by 6% on average during the early summer months.

This continued exchange rate support has helped to improve prices. However, other market factors, such as the EU voluntary milk reduction scheme, continue to dominate market trends, with exchange rates over the past year ultimately taking the edge off price falls and adding a bit to increases.

Since April of this year dairy market indicators in the UK have increased by approximately 13ppl, with exchange rates accounting for just over 3ppl and other factors under 10ppl.

There is every indication that dairy markets will continue to strengthen through to the spring of next year. And in these circumstances, according to AHDB Dairy, milk producers may well opt to pay back debt rather than chase extra litres.

“If this happens it will act to keep a lid on milk output across Europe over the coming months,” said AHDB Dairy Market Analyst Luke Crossman. “This, in turn, will serve to maintain pressure on milk output, thereby forcing buyers to further commit to the market. We are now seeing significant reductions in EU milk output, even in Ireland.”

AHDB analysts are now predicting that EU dairy markets will continue to strengthen right through to next year’s spring flush.

“This will take us through to next May. What happens after that will depend on a number of factors,” said Crossman.

A strong flush of milk coming onto the EU market next year could serve to weaken prices again.

“But if weather or other factors act to keep milk output levels constrained, this will have a strengthening impact on international markets.”

Crossman also said that China is, once again, demonstrating an active engagement on world dairy markets.

“This is adding to demand and the fact that the United States is putting very little product onto export markets is helping to boost international market sentiment.

“Prices for butter and cheese have been exceptionally strong in the US over recent months. As a consequence, dairy processors have had no reason to source international outlets for their produce.”

Crossman said that AHDB’s new Forward Market Performance (FMP) indicator is pointing to an average EU milk price for January in the region of 32ppl.