With major processors beginning to name their August prices, Alex Black takes a look at where the dairy markets are and where they may be headed.
Markets have taken a ‘pause’, with cream and butter values struggling in recent weeks, but farmgate prices will be mainly influenced by production volumes going forward.
The hot weather has hit grass growth and the knock-on effect on milk production will likely influence markets in the coming weeks and months.
Dairies have begun to announce their August prices, with Muller surprising some analysts by announcing it will hold its price at 28ppl.
Other dairies, including Dairy Crest and Meadow Foods, have raised their August milk prices but also reported uncertainty in the markets as cream and butter values declined, despite the looming reduction in volumes.
A Muller spokesman said: “Despite this, our milk price is holding steady for the month of August which we believe is a sensible and proportionate course of action.”
It added it was one of the few companies to adhere to the voluntary code and would be one of the first to announce an August price.
“We cannot control expectations set elsewhere in the industry, but we are confident our milk price and contract proposition will continue to be one of the most competitive in Britain.”
Last week, Meadow Foods announced a 0.5ppl increase, taking its standard litre A price to 28.5ppl, which it said reflected markets remaining ‘relatively strong’ despite cream prices softening.
It also flagged the hot and dry weather as starting to impact milk production and having the potential to have a ‘serious impact on supplies over the next few months and into winter’.
Dairy Crest also announced an increase of 1.75ppl for July, taking its manufacturing standard litre milk price to 30.4ppl.
And it follows a significant increase at Arla for July of 1.92ppl. Dairy analyst Ian Potter has suggested the industry was expecting Arla to announce a price hold for August, followed by a September rise.
Dairy analyst Chris Walkland said he had been expecting Muller to announce a rise, with others ‘significantly ahead’ for August.
“Cream values and butter values have dropped in the last two weeks, which is pretty strange given what is happening in the milk fields and with the drought,” he said.
“I was surprised they did not move up for August. But I am not surprised they are not at 30ppl.”
He added other processors thought Muller had done the ‘right thing because of the uncertainty’ but there had been ‘no chance’ of a price reduction.
“If prices are going to move onwards from where they are now I think we need a little more positivity on the Global Dairy Trade [GDT].”
The GDT fell 5 per cent at the latest auction, with whole milk powder down 7.3 per cent, butter down 4 per cent and skim milk powder down 4.6 per cent. But Mr Walkland said he was not ‘overly worried’ by the fall.