The board has issued a stark farm profits warning after the processor cut the price for March.
Muller’s elected board of farmers has issued a £46.4m farm profits warning to the processor following a 1.25ppl cut from members supplying Muller Direct standard liquid contracts.
The processor announced today the price would drop 1.25ppl from March 1 to 26.25ppl. This would rise to 26.75ppl for farmers who satisfy the conditions for the Muller Direct Premium.
The dairy attributed the drop to a surge in milk production from farms.
The Muller Milk Group (MMG) said this would result in a milk price loss of 4.76ppl on every litre supplied when compared with the average of the two main retailer cost trackers milk price models for February of 31.01ppl.
This loss across the average Muller Direct farmer, supplying 1.5m litres per year on a standard contract provided an annualised deficit of £71,400 per farm.
Müller’s Organic suppliers also received a cut of 1.25ppl which will deliver a reduced milk price of 39.75ppl for March 2019.
Announcing the reduction, Rob Hutchison, Muller milk supply director, said: “Supplies of milk from farms are well ahead of forecast and this is impacting the value of this milk.
“At times like this in the market cycle it is important that processors retain the flexibility to be able to offer different solutions.
“The Muller Fixed Price Contract is an innovative example and farmers who use this option have significant protection from this market volatility.”
Farmers who have opted to use the Muller Fixed Price Contract will continue to see 28ppl on litres signed up to the scheme.
MMG chairman David Herdman, said: “This latest 1.25ppl milk price reduction, in addition to the 2ppl combined cut over December and January for conventional milk, will deliver an increasingly unsustainable milk price to our members.
“The past few months have seen unprecedented increases in unavoidable farm costs for all MMG suppliers. The rise in costs, coupled with Müller’s decision to drop the farmgate price to 26.25ppl, has left many Müller Direct farmers in a dire financial position.
“Unless some economic realities can return margins in the liquid market place, then the prospects for future milk production from farms exposed to this sector must be called into significant doubt.”
While production has strengthened, with AHDB recording the highest UK off-farm milk production levels for a quarter of a century in December, Mr Herdman said the board had stressed the possible negative impact on future supply.
MMG said it recognised markets have come down from their peaks and some farms will have mitigated this position by engaging in the fixed price and futures offerings which have been made available.
Mr David Herdman added. “It was impossible for the MMG Board to support March’s Muller Direct reduction in milk price.
“It is clearly unacceptable to expect our Muller Direct members on standard contracts to sell milk at a 4.76ppl loss to the average of the two main retailer cost trackers milk price models.
“The MMG Board has had no alternative but to issue this ‘profits warning’ on our members’ behalf to reinforce the seriousness of the situation on farm.”
He added the board understood Muller alone could not correct the ‘current absence of sustainability in our supply chain’, but warned unless the sustainability issues were addressed across the liquid sector, the future supply of UK milk cannot be secure.