Speaking at the Outlook 2011 conference in London this week, DairyCo market intelligence manager David Swales asked whether last year’s increase in the milk supply could be repeated in 2011.
Milk production in the UK had been falling for six years in a row until 2010 when improving market conditions prompted a 4 per cent increase.
Swales told DairyReporter.com that an increase could be seen again in 2010. He said: “Potentially milk production could stay at the same level or even increase.”
Dairy market recovery
The main reason for this positive outlook is the continued recovery in global dairy prices. Swales said: “Dairy markets are a key factor in my view as lots of markets are at pretty high levels. Butter prices have dipped slightly but are at record levels and the SMP (skimmed milk powder) price has continued to go up over the last year. Cheddar is relatively stable and cream prices are at a pretty high level.”
Dairy market price increases are filtering down to higher farm gate prices and, according to the market analyst, there is still room for the money farmers receive for their milk to go up.
The farm gate price is currently 26p a litre and the value of a litre of milk in SMP and butter, according to the DairyCo AMPE measure, is 32p a litre. According to Swales, the size of this gap means there is significant “upward pressure” on the farm gate price.
Higher milk prices give farmers a good incentive to increase milk supply. And Swales said the early signs are that grass quality is good this year providing further encouragement for farmers to increase production.
Higher costs for farmers
But an increase in production is not inevitable as famers are coming under pressure from increased costs. Swales said feed prices have almost doubled over the past year and fertilizer and fuel prices have also gone up.
This provides farmers with a disincentive to increase production but Swales said processors are offering higher prices to ensure farmers deliver the milk needed to meet increased global demand. Dairy Crest, for example, has just offered an additional 1p increase in its price for April to September specifically in response to “on-farm cost inflation”.