Dairy market indicators adjusted for Q2 costs

Inflation in processing costs was more mixed in the second quarter of 2022 than in the previous three quarters. With the release of the latest data on average energy costs for Q2 2022, we have been able to adjust the cost elements of our market indicators, AMPE and MCVE, accordingly. These changes will be implemented in the October update.

In Q2 2022, overall inflation (as measured by the Consumer Price Index) rose 3.6% from Q1, a faster rate of increase than in the preceding quarters. Electricity costs and labour costs also rose quarter-on-quarter, though by more modest amounts.

In contrast, gas prices fell back from the peaks recorded in March. and stabilised through May. This put the Q2 average price 19% lower than in Q1 – though it was still more than double the Q2 2021 average. However, this reduction is likely to be short lived. Although the official Q3 average won’t be published until the end of the year, prices on nearby gas futures saw another high spike in that period.

When we apply these changes to average processing costs within the AMPE and MCVE calculations, the reduction in gas prices results in a small downward adjustment in overall costs. AMPE costs are now 0.08ppl lower than in the previous quarter, while MCVE costs are 0.06ppl lower. While most cost categories saw increases in Q2, the impact of the lower gas price, particularly for producing powders, was the dominant driver this time. However, it should be noted that all costs are still notably higher than in 2020 or Q3 2021, and are likely to rise again when the Q3 2022 data comes out.

It is important to note that the updated figures only reflect cost inflation up to June 2022. The next update will be in January 2023 following the ONS release of the Q3 cost indexes. A breakdown of the latest costs is given below:

The new costs include changes in:

• Energy costs based on the movement in the average prices of gas and electricity purchased by the manufacturing industry in GB as quoted by BEIS, up to Q2 2022.
• Labour costs based on the movement in the unit labour cost for the whole economy as quoted by ONS– these currently only go up to Q1 2022.
• Other costs based on the movement in inflation (CPI) from the 2020 update to Q2 2022

For further changes and to see how costs impact your own business, we offer an online spreadsheet that allows you to enter bespoke costs and milk quality into the calculations. This will then calculate unique indicators based on your own circumstances.

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