Why are price movements so mixed?

Thursday, 27 February 2020

By Jennie Tanner

Recent milk price announcements have been mixed, with both increases and decreases taking effect through February and March. This is in contrast to the stability suggested by our Milk Market Value (MMV) indicator.

The MMV indicator is a combination of returns from both fat and protein markets, with the diverging price trends in these two markets offsetting each other, leaving the overall measure unchanged. Over the past year, milk powder markets have been buoyant, cheese markets have been very stable, and both cream and butter prices have been steadily declining.

For individual companies, returns will be driven by performance in the product markets in which they operate. With different price trends occurring across the different dairy product markets, the variation in the size and direction of changes to milk prices paid to farmers is not that surprising.

For those companies relying on income from the fat markets in particular, such as those supplying the liquid market, this is reducing the amount they can return to their farmers. Similarly, by-product values have been pulling down returns for those producing cheese.

Market returns will only be one factor that impacts on the ability, and willingness, of a milk buyer to maintain or increase their farmgate milk price. Competitiveness with other milk buyers, the amount of milk available to them compared with the volume they need to satisfy their own customer base, and changes in supply chain costs, will all have an impact. In addition, risks to trade flows as a result of Brexit or coronavirus may also be impacting milk buyers cashflows.

As always, we would recommend maintaining a close relationship with your milk buyer to better understand the pressures on their business in these uncertain times.

Jennie Tanner

Analyst - Dairy & Livestock

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