Dairy farmers have enjoyed a relatively stable period of milk prices over the past two years, but the tide appears to be turning with Scottish producers in particular set to be the worst hit.

That was the stark warning from industry commentator, Chris Walkland, who pointed out that the majority of Scottish producers sold to four of the bottom six paying processors last year to include Grahams, Lactallis, Muller and First Milk, over the past six months.

Speaking at a Kite Consulting seminar at AgriScot, Mr Walkland said Arla paid the highest average price over the past six months at 29.1p, while the bottom, First Milk gave 27.4p. While the difference over the last six months is less than 2p per litre at 1.75p, it amounts to £8675 per million litres of milk.

These values which were based on standard litres include Arla bonuses but do not include seasonality payments, reveal that the top payers, Barbers, Crediton, Wyke, Dairy Crest, Dale Farm and S Caernarfon, have made better returns from cheese, than liquid processors, largely because of exports of cheese, according to Mr Walkland.

However, with the cheese market coming under increasing pressure as Brexit fast approaches and liquid milk supplies in New Zealand and the UK rising, ex-farm milk prices in this country are already beginning to slip. Add to that 12 consecutive declines in the Global Dairy Trade Index which last month returned a 22p per litre equivalent is the lowest it has been since August 2016, and there is only one way for farmgate values to go – down.

"When the differential between the Global Dairy Trade average price falls, our price in the UK gets sucked down, so it is inevitable UK milk prices will slip," said Mr Walkland.

"The big unknown is forage availability as I really don't think commodity buyers (those who buy from the processors) have factored in what could happen on farm if there is another late spring in this country and producers let milk yields slip rather than fork out higher prices for more expensive concentrates."

Instead, he encouraged producers to find out why their processors are in the bottom third as it would be hard to improve the situation unless they do know.

Mr Walkland is also against Defra's plan to introduce pricing through the regulation of milk contracts via the EU Commission’s common market organisation regulation (CMO), in the light of future market crashes, which he claims are" too constrained."

While David Keiley, one of a team of consultants working in Scotland for Kite, also believes farmgate prices will slip, he is confident nevertheless that producers north of the Border are better off in terms of the amount of forage produced.

"2018 has been a really tough year for producers and everyone has been forced to feed more due to the late spring and dry summer which have increased costs of production," said Mr Keiley.

"Most producers more or less had to start feeding first cut silage as a buffer as soon as it was ready and, there was an extra 128,000tonnes of concentrates used on the UK's 9850 dairy herds until the end of September, as a result."

With silage crops affected nationwide both in terms of quantity and quality produced, he said that the UK crop was 2tDM/ha down on the 2017 crop. However, Scottish producers have faired slightly better.

"Scotland had a better autumn and was able to make extra forage and wholecrop compared to those in the south and therefore has been able to bulk out feed rations albeit with silages that are acidic."

Instead, Mr Keiley said the biggest challenge to producers were the increased feed, red diesel and fertiliser costs over the year, which have added an extra 2.5-3.0p to the price of producing a litre of milk.

"Concentrate feeds are up £40-£50 per tonne, red diesel has risen 10p per litre and fertiliser costs are up £35 per tonne and are still rising, which have combined to increase costs of production. The good thing is Scotland is there has definitely been more forage produced but there are still no excess stocks, so there will be a real challenge if we see another late spring.

"It is going to be a tough time for producers but I think we will see a slight correction in the milk price rather than a collapse. I also don't think we'll see prices fall below 26-27p per litre as that's when the processors realise they lose suppliers. We also have indications that growth of world supply is slowing especially in the EU. As this develops we could see milk prices recover in Q2 of 2019," concluded Mr Keiley.