Projected farmgate milk price changes
Updated 4 January 2021
These projections indicate the expected movements in farmgate milk prices for the next three months, based on movements in the dairy markets.
- The projection for overall farmgate prices as a result of wholesale price movements remains relatively stable. However, the shift in demand caused by coronavirus and the UK's new trade environment will have differing impacts on processors, and hence prices paid for milk, depending on their customer base.
- Despite the last minute deal with the EU, there remain some risks on the horizon to returns for processors dealing with fresh product. Lower cream returns, and the potential for disrupted trade flows could put pressure on farmgate prices in these supply chains in the short term.
- AMPE fell marginally in December (0.1ppl) as butter prices continued to move downwards. SMP saw a small increase in price in the month as demand firmed and the pound weakened.
- MCVE rose by 1% (0.39ppl) in December in line with small increases in wholesale prices of mild Cheddar and whey powder.
- The net impact of these movements was a small increase in the overall market value of milk (MMV) from the previous month.
- For farmgate prices linked to market returns, this suggests further stability for the first few months of the new year.
- The projected change is based on the strong link found between movements in the value returned to manufacturers from the market (MMV) and movements in farmgate milk prices.
- On average, it was found that a 1ppl change in the MMV will lead to around a 0.5ppl change in the overall GB average milk price, generally three months’ later.
- Differences will arise due to the markets in which milk buyers operate as well as the mechanism they use to set the milk price. These will impact the timing of price movements as well as the size of the change.
- Other factors which are likely to impact milk prices will be the degree of competition for milk in the market, changes to available processing capacity, import competition and contract negotiations.
-  The Milk Market Value (MMV) is a weighted average of AMPE and MCVE on a 20:80 basis. This was found to be the best predictor of movements in farmgate prices based on historical data. The analysis was done excluding prices paid on retailer-aligned contracts. The impact of the adjustment of AMPE and MCVE following the 2020 review has been accounted for, and the model updated.