What goes up must come down
Posted on: 11/11/22
That’s the title of the 1974 Soul Record by Tyrone Davis and it’s certainly the case with Milk Prices.
The 1st November milk price increase from Arla and the 50p hold by the likes of Freshways have both snookered most milk buyers however the pressure for 1st January and beyond farmgate milk prices drops are now looking painful and brutal.
By brutal I mean in the drops will likely come monthly and in multiple pence per litre, unless a miracle occurs, because markets are going south at a pace and most processors will have no alternative but to pull back on farmgate milk prices asap.
Some key facts
Spot milk prices recorded by www.milkprices.com for August were at new record levels and up to 53.7ppl net to the producer 50.7ppl.
Spot milk briefly dropped below 40p around 10 days ago and is now back in the 45p region having dropped more than 11p in only 5 weeks due to a rapid increase in ex farm milk volumes.
GDT took another tumble last week down a further 3.9% and is now back to January 2021 levels with SMP down an eye watering 8.5% in only 2 weeks!
Bulk Cream has plummeted from £2.70 to £2.25 (down 11%) in only a couple of weeks. In August it was averaging £2.80 – this equates to 55p loss in cream price which is equivalent to a 5.5ppl drop in value to the processor on every litre of milk! (£2.80 to £2.25)
The German independent IFE has this week declared the value of Raw Milk has dropped below 50 cents/kg for the first time since December 2021 to 47.3 cents/kg at farmgate equivalent. That’s circa 40p litre.
The StoneXMilkprices.com Net UKMFE return to a producer allowing for haulage and processor margin for the month of July stood at 50.42ppl.
By August 28th it was 47.99ppl
By September 26th it was 45.5ppl
By October 31st it was 35.16ppl
This week 7th November it is 35.52ppl
That’s a whopping 15ppl drop in only 3 months.
The UKMFE is a value independently calculated from future trades in SMP and butter converted to ppl.
Futures are down, commodities are down and the headline from www.milkprices.com sums up the reality “Misery turns into an absolute bloodbath!” reference dairy wholesale prices.
All milk purchasers with the exception of Arla have to date stood on but that won’t be the case come 1st of January and whether you like it or not as things look forward projections on farmgate milk prices tell me that anything with a 4 as the first number could look like a good result through the 2023 flush. Let’s hope it settles in the early 40p region because below that and a rapid quick shrinking of the industry could happen without prior warning.
The biggest concern must be that milk production keeps heading up to the point that it exceeds spring processing capacity. If that happens “it will be carnage”.
Equally if the price does drop brutally and quickly it will without doubt hit summer and winter 2023 production so milk buyers need to take a long term view because its looking like a lethal cocktail which if handled wrong will result in a wave of producers chucking the towel in.
As previously stated by Ian on the 1st July “How long will farmgate prices stay at this level NOT how high will farmgate prices go. Well, it looks like it’s a 6 month short honeymoon.