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Milk price increases provide optimism for dairy industry

Falling milk production across Europe, a slight lift in dairy commodity prices and firmer spot markets for milk have provided a glimmer of hope for producers.

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While a complete turnaround may be some way off, industry analysts said there had been some positive signals over the past few weeks and news of price increases by two processors brought what some said were the green shoots of recovery the market so desperately needed.

Last week, Meadow Foods announced it would increase its A price by 1ppl for both July and August, taking the price up to 19ppl. Glanbia also announced a 0.5ppl increase for July.

On Wednesday, Arla Foods confirmed its amba on-account price for conventional milk would remain unchanged in July. However, as July would see a new quarter’s average exchange rate being introduced to the pricing mechanism, prices would reduce by 0.07ppl, taking the UK standard litre price to 19.05ppl.

NFU dairy board chairman Michael Oakes said while the price moves were a positive sign, it was critical improved returns filtered back to farmers.

"It has been the longest and deepest crisis anyone in the dairy sector can remember and clearly current farmgate prices are not sustainable," said Mr Oakes.

"It is important to stress many farmers are receiving a low price for their milk, so despite any small increases, they will still be extremely low."



In Scotland, the majority of dairy farmers still receive less than 19ppl, with many receiving less than 16ppl.

Allan Bowie, NFU Scotland president, said: "Let us be absolutely clear – milk prices have a huge distance to go if they are to return Scottish dairy farmers to profitability and rebuild the damage to confidence in the future for milking cows.

"In these statistics, we have the strongest indication yet that the tide is starting to turn and the UK dairy chain must waste no time in responding through milk price improvements."



Commodity prices have been increasing, driven by the fat market. Butter prices have risen sharply in the last month as buyers held lower than expected stocks.

EU milk production has also seen a slowdown. About 2.5 billion extra litres of milk came out of the EU in the first three months of the year, but little or no additional milk was expected for the remainder.

However, dairy analyst Chris Walkland urged caution.

"The worst thing farmers could do is to say, prices have gone up, let’s increase production,” he said, adding the increases did not necessarily mean others would follow.

"I did not think Meadow Foods would announce the August increase – that is a strong marker for the future. The fact they have moved hopefully signals that others will at least hold."



North West Auctions, Lancaster, said the increases had led to a ‘buzz’ in the dairy ring, with buyers having ‘extra confidence’ when buying replacements.

Rob Hitch, of Dodd and Co Chartered Accountants, said even a small increase could have a considerable effect.

"Two or three pence could be the difference between standing still and going backwards," said Mr Dodd.

"They are probably not going to be making much money but it will not be quite as desperate."


B prices

Meadow Foods also forecasted significant improvements for B prices in July and August.

NFU president Meurig Raymond said this was the processor’s opportunity to pay a ‘decent price’.

"Some of these guys are getting 10p for B quota, for 10 or 20 per cent of their milk.

"But if the market is going up, dairy farmers should be receiving a minimum B price of 16ppl."


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