Dairy farmers will need to consistently produce milk at around 25ppl if they are to have a sustainable future, according to dairy market analyst and industry journalist Chris Walkland. Speaking at the Molecare ‘Make Milk Matter’ conference last week, he predicted that the average milk price over the next five years probably wouldn’t be too far away from that mark. “The non-aligned average over the last five years has been around 26p so it’s a reasonable target to try and aim for, if not a difficult one for some farmers,” he said. “If you can’t get down anywhere near that level then consider your future,” he advised, “otherwise learn and find suppliers, advisors and experts who will help you get there.”
Currently there was no sign of prices returning to a sustainable level anytime this year, he said, with projections of forward and futures prices indicting non-aligned prices will be around 18 – 19ppl this summer for the very best contracts, with farmers on commodity or B prices down at 15ppl or even less. There was simply too much milk in the UK and across Europe, with near neighbours Ireland accounting for a significant element of Europe’s surplus, and not enough demand due to the fall off in demand from China and collapse of the Russian market. He calculated that between them the two countries had probably spent $4 billion less on dairy products in 2015 than in 2014. “This is bound to have a significant effect on milk prices and incomes all over the world,” he added. “You are paying the price of politics between the EU and Putin, remember, and you are letting the politicians forget this.”
Despite farmgate milk prices falling constantly he believed the problem wasn’t money getting stuck in the supply chain between the processor and farmer, but that there simply wasn’t enough money coming in the supply chain at the top. This was due to global market factors but also domestic ones, and was despite some retailers paying a premium to their aligned dedicated farmers. This was because the processing fee the retailers negotiate with the processors claws back some of that additional money, and this effectively means the non-aligned prices are lower than they otherwise would be. “Four pints for 89p or for £1 is not resulting in a sustainable dairy industry, regardless of the global market factors. The more money that comes in at the top of the hopper the greater is the chance of more getting to the farmer. And the more money that does so the more the farmers will reinvest in their farms, their buildings, and their animals. At the end of the day, it’s the farmers and the health and welfare of their cows that are paying the price of the 89p-£1 for four pints retailer culture.”
And he stated that we were living in very perverse times indeed when milk, known as the complete food, is a by-product of a dairy farm because a farmer can make more money out of the slurry. “But that is the reality for some farmers with digesters.”
The outlook was currently very bleak, but he pointed out that the market can change very quickly and things come in from left field to change sentiment. “The market is bogged down by EU stocks of butter and Skimmed Milk Powder, but all it would take is one announcement from the EU saying that substantial volumes are being given away for Food Aid and sentiment will change. The Global Dairy Trade auction has been positive for two successive events, and New Zealand is coming to the end of its milk year, so the markets may have bottomed out. Unfortunately, though, the lag in the market means UK farmgate milk prices might continue to fall before they start to turn.
“Unfortunately the recovery will not be a predictable straight line it will be unpredictable, and go in all directions.”