Milk prices under pressure from weaker markets

As we enter a new year, farmgate milk prices look set to change direction after a year of record-breaking price increases. With one exception, announced changes to milk prices for the beginning of this year have all been downwards – the first reductions we’ve seen for almost 2 years.

Increases in milk prices through 2022 were pushed through faster than under normal circumstances, triggered by the unprecedented rise in farm input costs and the threat of milk shortages. That being said, strong returns from the market supported the additional cost to processors.

The higher prices, along with the more widespread increase in the cost of living, meant demand for milk and dairy products diminished through the latter part of the year, and dairy product prices started to ease.

At the same time, milk production in the northern hemisphere has picked up. This was primarily down to improved farm margins on the back of elevated milk prices, although the favourable weather conditions in the UK and EU through the autumn also lent a hand.

We are now seeing these lower market returns flow through into milk price reductions. Assuming the typical lag of three-four months, milk prices are projected to see further cuts as we move into the spring.

The extent of price cuts in the second quarter of 2023 remains uncertain, as the degree that commodity prices, and market returns, drop will depend on the strength of the northern hemisphere flush relative to demand. The general consensus from most analysts is that global milk supplies will see a modest increase year on year growth, although in part this is due to low volumes last year. Balanced against this is the potential for some improvement in demand from China, although its unclear how quickly this will occur following the reopening of its economy.

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