Relatively stable outlook for commodity milk prices

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Writing this at Easter weekend, many producers will be hoping that Spring has finally sprung. The new season brings optimism, and dairy farmers will be wondering what the milk price might be as we approach the annual flush in production. Without wishing to sound bullish, indications are that we should be looking at relatively stable prices as we enter Q2 (April – June).

We have undoubtedly experienced a challenging Winter in terms of weather, with a sting in the tail coming in the form of “the Beast from the East”. Lower seasonal ground temperatures are having an impact upon grass growth, with inevitable implications for milk volumes. This has been one contributing factor to the expectation of continued decent milk prices.

At the end of 2017, dairy commodity indicators were pointing to a weakening of prices in Q1 (January-March), with butter falling from previous record highs during Q4 in 2017. Since December, Northern Ireland’s base milk prices have fallen by an average of 5.50% to 27.50p per litre. Forward contracts, which may have been settled in Q4 2017, could mean a further slight correction in the March milk cheques. However, if these milk price corrections do materialise they are likely to be minimal.

Indications are that the cuts will not be as large as originally anticipated in December and base prices should be higher than the five-year average for the month of May.

The table illustrates the butter prices hitting record levels in August-September 2017. It also illustrates the fall in prices in Q4 and crucially within the context of this article a recovery in butter and cream prices in Q1 this year, with the latter generally trading this week between £1.85 and £1.95.

Recent EU and Oceania dairy commodity markets are showing generally stable results, with relatively slow trade. The latest GDT all-price Index in New Zealand was down marginally by 1.2%. In the Netherlands, ZuivelNL saw slight slips for powders, yet butter remained unchanged at €4,780/tonne.

Cheese is also still fairly static due to the late spring, with mild cheddar prices c.£2,950/tonne. However, like with other markets there is currently little trade. Mozzarella prices have improved in recent months and the latest results show that the product is holding firm at £2500. This may have a knock-on effect upon cheddar prices, with an opportunity to back-fill markets. All adding to the optimistic mood.

What about Skimmed Milk Powder (SMP)? According to dairy traders, there is growing demand for new product. This is on the back of the current bargain basement prices surrounding the product, with SMP in some instances trading for just £1100. The cautionary note remains the sizeable stocks still sitting in Intervention stores (see end of article) but no real impact on immediate prices.

The only friction which is impacting upon dairy market stability is exchange rate movements. Sterling has rebounded to €1.14 and $1.42 from €1.12 and $1.38 in the last two weeks, on the back of recent clarity on transition regarding Brexit as well as labour market data. The last MPI (Milk Price Indicator) reflected this at 27.08ppl.

Looking ahead, butter futures markets are showing no signs of major downward trends in prices through Q2, which reinforces the Ulster Farmers’ Union view that farmgate milk prices will be relatively stable as we hit flush annual milk production.

Skimmed Milk Powder Sold at tender

Last week, the latest round of tenders closed for skimmed milk powder (SMP) held in public intervention and member states accepted offers to sell 4,127tonnes of SMP. In total tenders were placed for 37,712t of the product but prices were not accepted. The minimum price accepted was 105 euros/100kg.

There still remains some 370,000t of product held in intervention. Followingchanges to the way in which the European Commission buys in SMP the price that the commission pays is no longer fixed and there is now a tendering process.

At the same meeting member states rejected all bids for 1,349t of SMP to be placed into intervention. The tendering process of buying and selling SMP will run in parallel until the end of September.