Projected stability in MMV hides risk to farmgate prices

Thursday, 3 December 2020

By Patty Clayton

The latest indicator of the market value of milk, based on November’s AMPE and MCVE, hides the risk to farmgate prices from trade disruption as the UK exits the EU common market.

Under normal circumstances, AMPE and MCVE provide an accurate reflection of available market returns to manufacturers for their product. Farmgate price changes typically reflect movements in these returns after a lag of around 3-4 months.

At times, other factors will have a bigger impact on the value of milk and can therefore cause farmgate prices to change even when the market looks relatively stable. Currently, the uncertainties around the movement of goods into the EU is hindering some business’ ability to secure sales. This is a bigger issue for those who trade in fresh dairy products, which are perishable and therefore face higher risks from delays in shipments.

Longer life products destined for EU markets may also see reduced sales, particularly in the first part of 2021, while the logistics and bureaucracy of new trading conditions are ironed out. The current uncertainties around tariffs mean EU buyers have been hesitant about sourcing UK product. Similarly, those buying dairy ingredients to be used in manufacturing are looking to avoid potential labelling and Rules of Origin issues around the use of non-EU ingredients.

All of this affects demand levels and adds costs, ultimately putting downward pressure on margins.  So while returns for butter, SMP and cheddar on domestic markets appear relatively stable at the moment, there are some risks to processor returns on the horizon which could, in due course, impact farmgate prices.

Patty Clayton

Lead Analyst - Dairy

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