Low stocks give mild encouragement to Cheddar prices

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MILD Cheddar prices on UK wholesale markets rose to £2,975/tonne in January, an increase of £50/tonne (1.7%) from December prices.

This was in response to pressure arising from the tight supply situation in the UK market. It will also have been affected by the weakening of Sterling against the Euro, which will have increased the UK value of Euro-denominated sales and the price of imported Cheddar.

Cheddar production is normally low through the autumn when milk production is in the trough. However high spot milk prices, resulting from below average milk production, diverted even more milk away from use for manufacturing than normal.

With Cheddar manufacturers not making cheese with their surplus milk, any non-contract sales will have been satisfied from existing stocks. The pre-Christmas product recall of mild Cheddar from three major retail supermarkets will have further reduced stock levels.

Commenting on these matters a DairyCo representative said: “With farmgate prices increasing from October through December, cheese manufacturers would have faced increasing costs when rebuilding diminished stocks. If mild Cheddar prices continue to move up, as manufacturers attempt to recoup the higher cost of production, this could put upward pressure on mature Cheddar prices as well, which have not changed for over 18 months.”

Meanwhile, as the UK milk industry gears up for the much discussed voluntary codes of practise - to be introduced post the ending of milk quotas in 2015 - greater scrutiny over future milk pricing is already the order of the day.

In the first instance, it appears that there is much confusion over how the term ‘standard litre’ is used. Significantly, DairyCo believes this stems from the different uses of the term in the industry.

Most people would assume that a measure with the word ‘standard’ in its name would be the measure utilised by the whole industry i.e. an industry standard. However, when it comes to defining a standard litre across the dairy industry, there is no standardised composition.

To give an indication of the price paid for milk, milk buying companies publish a price based on a set of criteria – often referred to as a standard litre.

However, the criteria set out by each company are different as each milk buyer has a different combination of uses for the milk, requiring different properties from the milk they buy and thus valuing those properties differently. For example, the protein levels required by a cheese producer would be greater than a company mainly selling liquid milk.

In short the ‘standard litre’ used by each company reflects its individual requirements and is standard for that company and that company alone. This makes comparisons between prices published by milk buyers difficult, if not impossible. Although two contracts may offer the same price on the surface, the price paid to the farmer will not be the same if they are based on a different set of criteria.

To be able to compare the milk price paid by different companies or different contracts, it is necessary to look at what would be paid for the same litre of milk. To do this, compilers of league tables base milk prices on a defined set of criteria for a litre of milk – i.e. a standardised litre of milk. This gives a common ground for comparison and highlights the range of prices on offer for the same litre of milk.