Tight global supplies bring stability to UK farmgate milk prices

Thursday, 13 February 2020

By Felicity Rusk

UK farmgate prices remained remarkably steady across 2019, despite a year of trade turmoil, exchange rate volatility and Brexit uncertainty. Through 2019, the average monthly UK farmgate price (excluding bonuses) fluctuated between 27.84 ppl and 29.85ppl, a range of just 2.02 pence. In comparison, farmgate prices had a range of between 4.8-6.3ppl in the three previous years. This highlights the relative stability of the market over the past 12 months, despite the uncertain conditions.

 

Why have we seen this price stability?

2019 was a remarkable year for UK milk production. Widespread use of concentrate feeds in the first quarter followed by ample grass growth throughout the spring and summer months supported yields. As such, UK production reached nearly 15.0 billion litres, 1.6% higher than in 2018 and the highest production year since records began.

 

However, this growth was pretty unique in global terms. Severe weather challenges hampered production in Australia and Argentina, while the EU and US only recorded marginal growth. Overall, global milk production increased by just 0.1%. Meanwhile, demand growth for fresh and processed dairy products is around 2% per annum, supporting markets at a global level.

This support filtered into the UK market, and prices on UK wholesale markets showed markedly less variation in 2019, compared to the five-year average (2014-2018).

 

Will this continue?

At a global level in 2020, growth in demand will continue to outstrip the growth in supplies, based on our most recent estimates. This should continue to provide support to wholesale market prices, and assuming UK prices continue to track global markets, will lend support to UK farmgate milk prices through the spring

 

 

Felicity Rusk

Analyst - Dairy & Livestock

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