As commodity prices continue to tumble and milk production recovers, dairy farmers are right to brace for a fall in farmgate milk prices. Key UK dairy commodities have been trading down again this month, including the prices of whey, mild cheddar and butter, bringing down the overall market value of milk by 3.6ppl from December 2022.
According to the AHDB, the developments are pointing towards ‘substantial downwards pressure on farmgate milk prices’ in Q1 2023. The body predicts that on average, a 1ppl change in the market value of milk would lead to about half a pence per liter change in the average milk price.
And recent announcements by Arla and Muller have all but confirmed that the industry is heading for a significant reduction on farmgate milk prices this Spring.
On January 30, 2023, Arla Foods announced that on-account price for conventional and organic milk will decrease by 2.65ppl (3.0€c/kg), bringing its UK manufacturing price for conventional and organic milk at 48.47ppl and 53.25ppl respectively.
Today, January 31, 2023, Muller UK & Ireland revealed that it will cut its milk price from 47ppl to 44ppl from March 1, 2023 for Advantage scheme farmers. This is the second consecutive farmgate price cut by Muller, who reduced its February price by 1ppl.
Both prices are below the UK’s average farmgate milk price for December, which stood at 51.51ppl.
Low consumer demand and rising milk volumes are among the reasons highlighted by both processors for slashing their farmgate prices. Paul Savage, agriculture director for Arla UK, said: “The uncertain economic outlook means we are currently facing a declining commodity market. We know that our farmer owners are still facing significant input costs for labour and energy and we remain committed to continuously looking for ways to deliver the most value to our farmer owners milk.”
Arthur Fearnall, Arla Foods amba board director, and farmer owner, added: “Consistently high inflation continues to drive a reduction in consumer demand as shoppers look to lower their overall basket spend. As consumer demand falls, milk volumes in the commodity market continue to increase, thus pushing commodity prices down further.
“The organic market is also reacting in a similar way, as consumer consumption continues to react to the high inflation coupled with less demand. The outlook is negative, driven by a decline in commodity prices and reduced consumption.”
Richard Collins, head of agriculture at Muller Milk & Ingredients, echoed this sentiment: “We are seeing a continued significant reduction in commodity prices driven by reduced demand,3 coupled with supply ahead of forecast.
“Following a period of unprecedented milk price increases, we will continue to review all factors which influence farm gate milk price, ensure we support our supplying farmers and protect the security of supply.”