Market values suggest upward movement in farmgate pricing

Monday, 29 March 2021

By Patty Clayton

Dairy markets have performed well over the past year, recovering after the shock caused by the initial lockdown in March of last year. Since the beginning of this year, prices have steadily increased on UK spot markets for most products, with mild Cheddar remaining stable.

In generally, these trends should provide continued support to market-related farmgate pricing into the early part of the summer.

However, there are some headwinds which could cause disruption to some parts of the market, and impact returns for some processors.

  • The difficulties in moving fresh product out of GB could curb returns for bulk cream and skim concentrate, especially if supplies build within the country as we move through the flush.
  • With available margins in the liquid sector already thin, anything that reduces revenues from cream could add further pressure to already tight cash flows.
  • While overall demand may increase as the lockdown eases through the spring, that demand may benefit imported products more than domestic production.

 We have seen over the last year how increases in retail sales have driven demand for home-grown dairy. As that trend reverses, and out-of-home sales rise, we may see an increase in imports.

As we move towards the spring peak, the balance between retail and out-of-home demand, compared with the growth rate in production, will be critical to determine which direction farm prices move.

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