November dairy market review

Average GB milk deliveries through October were 1.5% lower than year earlier levels, although showing typical growth out of the trough. So far in November, average deliveries¹ are running 2.5% below last year, and 1.4% below forecasted figures. The relatively low milk production will have further tightened product availability, and high spot milk and bulk cream prices will have limited volumes going into manufactured products.

Global milk delivieries saw a year on year drop in September of 0.6%, equivalent to a drop of 4.9m litres of milk per day. Production is dropping year on year in all the key regions except Argentina where there is some growth, and the US where production was in line with last year.

Production in both New Zealand and Australia is being negatively impacted by unfavourable weather. Variable wet and dry spells in New Zealand have seen production in the peak periods of September and October drop by 4.3% and 3.3% respectively. In the US, tight margins are reducing yields and leading to herd reductions. After nearly 18 months of year-on-year growth, US production was steady yoy in September, and marginally down (-0.5%) in October. Production in the EU-27 has also been hit by high costs and herd rationalisations, hampering production growth in its three largest regions of Germany, France and the Netherlands.

Commodity prices have continued to increase in both domestic and global markets, driven by tight supplies of both milk and manufactured products and firm demand.

There was a sizeable jump in both AMPE and MCVE in November, which were up 16% and 7% respectively on October figures. While the current levels of these indicators may overestimate the equivalent market value of milk², it is the move in market values that is of relevance.

The Defra average price across all contracts in September was 31.58ppl, and 31.26ppl when excluding retailer aligned contract prices. The higher market returns in recent months suggest increases in market-related farmgate milk prices should start to filter through over the winter. Some of these have already been announced, and several companies have announced further price increases for December and January.

Despite higher prices, farmers are likely to struggle to cover additional costs. Input costs of the three ‘Fs’ – feed, fuel and fertiliser, have all seen significant increases. Fuel and fertiliser costs have seen the largest jumps, which have occurred in the past couple of months. Feed prices have been at relatively high levels for an extended period, and will have been depleting margins throughout the year.

¹7-day rolling average

²increases in manufacturing costs have not yet been accounted for in the AMPE/MCVE calculations. These will be updated on publication of ONS cost indexes in December

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