Milk Price Outlook is heading for further price reductions

UK milk output is simply a pipeline heading rapidly towards full bore and pressure.

It’s a fact that other than the dramatic and sudden intervention of Mother Nature with a second Beast from any direction the only signal likely to rein in production will be further processor price drops.

Spot milk is heading South and is under 20p with trades today reported at 18ppl and showing no signs of levelling with some fearing a return of single digit prices.

Cream has dropped by 25p from £1.65 and hovering around £1.40 in only 4 weeks a reduction equivalent to around 2.5ppl to a liquid processor or retailer depending on contract terms.

The forward market signals offer no encouragement and are sliding South.

Arla and most of the cheese processors are indeed performing extremely well in holding farmgate milk prices at current levels for the moment. If they can ride through spring holding current prices it will be a cracking result.

One positive is that only 1,400 tonnes of SMP remain in EU Intervention stores compared to 380,000 tonnes in 16 months ago in November 2017.

Not sure how much foreign cheese is in our stores in the run up to Brexit but its a fact there has been significant forward buying of dairy products in the run up to Brexit which is likely to cool down from this point forward as buyers sit back. That’s unless we end up with a delay and they opt to keep topping their dairy stocks up as an insurance.

According to the predictions of industry analyst Chris Walkland the UK has only ever produced 45 million litres a day on two previous days and this year we could touch 46 million litres/day.

Unless things change very soon he predicts spring 2019 will see that 45 million litre day smashed for 30 consecutive days.

That leaves one big question. Do we have the capacity to process all the milk or will we see distress milk? 

It won’t matter a jot what Ian Potter  says because what will be will be and it now seems inevitable that further price cuts are on the cards especially from some liquid processors, unless something sensational happens to cut UK milk output and quickly.

Back in October Ian stated by spring 2019 there would be a price correction to somewhere between 26 to 27ppl for liquid processors and not a price crash. That assumed it was a “normal” year. Its by no means a normal year in terms of milk volumes in terms of the political uncertainty the industry faces so those predictions could be history within weeks.

Overall the Outlook is not looking good with the likelihood of more pain before any gain. Don’t shoot the messenger who has a pretty good track record of calling this market.  Nervous times are certainly here.