The outlook

Firstly, let’s not forget Arla’s milk price is a European milk price and is impacted by several different dynamics to the UK price. This means others do not have to follow Arla’s move just because they can in a downward spiral race to the bottom.

Whilst the NFU’s Chief Dairy Advisor and others have had several pops at two industry commentators forecasts (namely, Walkland and yours truly) over our price predictions going back to November, they are now looking remarkably accurate. At this week’s Dairy Breakout session the clear suggestion from the NFU was that prices WILL be rising. We don’t agree.

If Arla’s latest drop to 26ppl for liquid is a low point and prices recover post the flush then Ian calls that a result. It could be a case of one deep cut, and if they are unlucky a little bit more still to come, but for sure a 25ppl or less milk price looks less likely now than it did.

European production and Mother Nature will have a part to play but Ian still believes the likely Arla member milk price low point will be between 25p and the current 26ppl. 

Spot prices have firmed in the last 2 weeks by around 2ppl due to a surprise surge in cream prices and for liquid prices are around 25 to 26ppl, but little is trading and the market is very finely balanced. Whether this cream price surge is sustainable is questionable given the fundamentals.

Meanwhile, Arla have announced their 2017 results this week. 

Sales increased 8.37% to £1.94 billion (from £1.79 billion) and net profit was within the co-op’s target of 2.8% of revenue.

Gross profit fell 5% to €2.28 billion with profit before tax down 19% to €321 million compared to €398 million in 2016.

There’s lots of emphasis by Arla on the strength and importance of Arla’s brands which “delivered the greatest revenue growth” but with today’s major member price cut understandably several members are questioning whether their member investment in these brands is producing a return to them.  Also note at the NFU Conference Arla’s UK MD, Thomas Pietrangeli stated “I am measured on paying the highest possible milk price to the owners.”  Need we say anymore.