My last article talked about the lack of milk contracts in Scotland and the desperate situation some Yew Tree farmers were facing.
There’s more positivity this time around, though, after Muller announced major changes to its contract by offering suppliers the choice of staying on the ingredients contract or moving to a 60%:40% ingredients: liquid contract.
There are also some welcome reductions in haulage charges, increases in volume bonuses, and some not so welcome (but inevitable) changes to seasonality.
The deadline for sending back contracts is the end of August for a November start, so it’s too soon to say what percentage of farmers will move to the new option or stay on the old 100% ingredients one.
I think most people will change, with the only ones that perhaps won’t, being Jersey farmers or those with fats higher than 4.8%.
While the new contract doesn’t go as far as some farmers might like (i.e full parity with Muller Direct farmers) I think it’s a huge step in the right direction. It will close the price gap between those supplying into Skelmersdale and those supplying other commodity processors like Meadow Foods, especially when B prices are taken into consideration.
It should also give a more stable price. I’d be surprised if farmers aren’t between 2-4p per litre better off, depending on where they are, their milk volumes and quality.
But the good news for Scottish farmers doesn’t end at Yew Tree. I was pretty surprised to see Graham’s 1.75p price increase for September, to 42p. The move was the biggest of the five price increases announced for the month and propelled the firm from the bottom third of the price league table to mid-table for the month. It fails to make it into the top 10 prices by just 0.1p on a standard litre. I don’t think it has been in that position for a good while.
Sceptics might say that the McQueen’s recruitment will have been the trigger, but I’m not sure the volumes it is taking on, and the timescales, are big enough to have an impact and to move the dial in Scotland. I think it’s more likely to be due to an improving cream price and closing the gap on Muller’s position at 42.75p.
I believe its move might also prompt other liquid processors to increase their price for October, although whether Muller does so again after its 0.5p September increase remains to be seen.
Milk price gulf
Certainly, its farmers are still looking at the gulf between their price and the Arla price with envious eyes, but Muller’s dilemma is that if it increases its price, then it will get more milk that it doesn’t want and certainly can’t get a 42.75p return from. My money would be on no more money just yet, therefore.
From a market’s point of view, there isn’t much money in the kitty to divvy out, so any increases will be on the back of the need to compete with other processors. While the cream price is still strong at £2.75-£2.80/kg at the moment, and justifies some minor price moves, the sentiment on other commodities is slipping as global milk volumes increase.
Traders are certainly trying to talk prices down, with butter spot prices now at €6800 and with lower prices for Q4. But sellers are supposedly chilled, and expecting an upturn when traders fully return from their (ever longer) holidays. It seems that European dairy traders take at least a month off in the summer now. Meanwhile, back in the farmyard and dairy farmers, er, don’t take a month off.
Despite the negative talk, there are certainly reasons to be optimistic – cream has been higher in Q4 than in Q3 in three of the last four years, and butter has been higher in four of the last six years.
The big question will be whether the demand for butter is there to absorb the added production that will come from the extra milk. The statistics do point to some significant supply increases for butter across Europe, for example, and exports from the EU aren’t doing much to help the situation, as milk production in New Zealand and the US is also significantly higher.
GDT in neutral territory
Products from that will be on the world market at cheaper prices. In fact, it looks as if the EU imported more than 20,000 tonnes more butter than it imported in May.
Cheese looks to be relatively stable, and I’m not picking up much concern from manufacturers there.
The GDT is also helping the market, I think. The summer can often see some bad results for the auction, with the first one in July dropping 3-6% for each of the last five years, for example.
In 2023 drops of 4.3% were seen at the first August auction, and 7.4% at the second. But this year has been good in comparison, with the last three auctions firmly in neutral territory and with this week’s down just 0.3%. It could have been a heck of a lot worse. September usually sees some positive increases, too – although not last year.
Small price rises
All in all, therefore, I’d expect a stable milk price through to the year end, with some small rises from those at the bottom end of the table, but not from those at the top.
Away from the markets, though, and thoughts will soon be turning to winter milk prospects, if they aren’t doing so already. Although the UK’s milk volumes have been tracking 5% higher than last year, this percentage differential is set to fall soon, as September 2024 saw volumes rise markedly. Thus, I’d expect volumes to be 2- 3% higher from mid-September.
Not long after that, cows will be housed and fed on… well, who knows what in some parts of the country. Scotland and the North of England are thought to be OK for winter feed stocks, but there are some horror stories from other parts of the country.
Cows are apparently being sent for slaughter early, maize quality is rubbish in parts, and some herds have been tucking into first-cut silage for weeks. Surely this will have an impact on winter milk. Won’t it? You’d think so… but farmers do feed cows well during a dry spell, and with concentrate prices being what they are, there’s no guarantee volumes will fall much, if at all.
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