Higher prices on the horizon?

By Patty Clayton

The combined impact of tight supplies and rising demand has triggered a surge in market prices for dairy products in recent months. Butter and SMP prices are 33% and 44% higher respectively than year earlier levels, while mild Cheddar has seen an annual increase of 18%. The latest price increases on spot markets for dairy products has led to the equivalent market value for milk (MMV) reaching a 5-year high in November, and moving up 3.3ppl on the month.

Typically, higher returns to processors would lead to rising milk prices for those on market-related contracts, following a short lag to allow for price changes to flow through the supply chain.

However, in the current climate of rapid cost inflation, these relationships may be disrupted[1]. Each processors’ product mix, exposure to recent input cost hikes and success in renegotiating selling prices with their customers will affect how much of the increased market value they are able to realise. This will subsequently affect how they adjust the prices they pay for milk as well as the timing of any changes.

To see how the market impacts your individual milk contract, you can visit our analysis on How to get a head’s up on milk price changes.

[1] The cost components of AMPE and MCVE will be updated to account for recent input cost inflation in December when manufacturing cost indexes are published by the ONS. It is worth noting that the current values may overestimate returns until this update occurs.

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