Global milk prices to remain strong into 2014 - dairy industry web debate
GLOBAL milk prices are expected to remain strong into 2014 on the back of high demand and disruption to supplies, according to experts who took part in a Farmers Guardian web discussion on Friday (May 31, 2013).
But NFU dairy board chairman Mansel Raymond has insisted that, despite the wave of recent milk price increases, UK farmers are still not seeing enough benefit from the global upturn in market prices.
Andrew Thompson, director for Genus’ bovine sector in Europe, said there has been a ‘perfect storm’ in terms of dairy supply over the past year that has seen production hit in a number of major milk producing areas.
Major problems with drought in Australia and New Zealand have been compounded by falling yields in the UK, cows being culled in the US and dreadful weather in Latin America. This has resulted in ‘significant changes in world milk price’.
“These prices should remain good as we move into 2014 and we then have a better idea of the balance between supply and demand again,” he said during the debate that asked whether the UK dairy industry was in a better place a year from the SOS Dairy campaign.
“In my view it will take a year before supply levels really have a chance of getting back to previous years, hence some stability in the market which may help producer confidence. The challenge we see is how do producers manage this volatility.”
Dairy UK director general Jim Begg said milk prices were rising on the back of strong demand. “The markets are stronger, prices have risen. Long term the demand outlook is strong. Volatility and input costs will remain a major challenge. Also, people are investing and showing confidence in the future of the UK industry. That’s got to be good,” he said.
Mr Raymond said the market was ‘headed in the right direction’ following ‘one of the worst winter/spring in 50 years’.
“Cash flows have been under immense pressure, work load has increased and a lot of farmers are struggling to make ends meet. In terms of the physical performance of farms, output is clearly down and cows are struggling to produce the milk from grass, because of cold weather,” he said.
But he said, while prices are rising they needed to go further. “In our strategy document that we’ll launch in July, we will highlight that farmers need 2-3ppl to invest in capital infrastructure each and every year, in order to have a future.
“With costs of production running at 32ppl+ clearly a price well above this is needed. AMPE for instance is at 38ppl today, we should be looking forward to further immediate price rises.”
Cheshire farmer Phil Latham, who announced at the start of the debate that his dairy herd had just tested clear after the loss of 83 cattle to bTB, said farmers were ‘in a better place’ as the ‘psychological 30ppl barrier has been broken in purchasers minds’, which he said had prevented prices moving up in the past.
Describing the challenges of the past year, he said: “Our wheat was 49 bushel weight so we had to buy in additional feed and our silage from last year was stemmy, both conspired to increase costs and our feed rate/litre got up to 0.58 in January! Forage stocks were a problem too with the cold spring which meant a late turn out further exacerbating the increased costs of production.”
He added: “I don’t think most farmers feel that the uplift in price has been high enough as there’s clear demand globally and market indicators suggest that better returns have been available for processors.”
The panellists clashed over the impact of the Dairy Code of Practice on milk contracts agreed at the height of the SOS Dairy campaign.
Mr Begg said the supply chain was operating more smoothly: “We are up and running with the Voluntary Code which is working well and has strengthened supply chain relationships. New pricing systems are available which improve transparency no end,” he said.
“The Code has achieved a very high penetration. Quite unbelievably high given that’s it’s a quite radical change. That’s a plus. We mustn’t undermine success stories and Code has been one.”
But Mr Latham said his milk buyer had was still ‘working towards implementing’ the code and would ‘prefer that they had certainty of terms that they can pass the losses to farmers if necessary as they have without the worry of losing supply’.
He said buyers who are resisting the code and its three-month exit clause were taking advantage of their position. “The right to terminate will only become an important tool once enough farmers in a pool have that term,” he said.
Mr Raymond said the target for uptake of the code, currently at nearly 90 per cent of UK milk volume, ‘remains 100 per cent. “Until we get there we won’ give up, we’ve not extended deadlines and the pressure is still on milk buyers to comply,” he said.
He said the three-month ‘right to terminate’ within the code puts pressure on buyers to remain competitive. “The producer has the opportunity to look around and the buyer knows it,” Mr Raymond said.