Soar-away volumes to pressure milk prices in Q2

On the face of it not a lot has changed on the commodity price front since my last article in September. Butter was €8050/t at the time, and now spot trades are going for as high as €8100/t.

UK butter was £6800/t to £6900/t, and now it’s between £6600/t to £6700/t. Cream was £3.25/kg and is now around £3.10/kg, and the cream income to a processor was 18p and now it’s around 17p. Mild cheddar was around £4200/t and now it’s £4300/t.

Number of the days in the month setting new record high But as ever with the dairy markets there’s a story within a story in the above paragraph. That’s because prices dipped markedly during October, with end-use buyers thinking that prices had turned a corner (i.e down!) and that the time for lower prices had come again. For example, Dutch butter dropped over €650/t in just three weeks through October, down from €8100/t to €7440/t, before it started to climb modestly at the end of the month. But the first week of November saw it increase by another €170/t to €7650/t, and the spot prices have soared back over €8000/t again.

One of the main drivers for that was the GDT auction, which increased overall by 4.8%, and with butter soaring 8% including EU butter. EU December butter fetched the equivalent of €7900/t for example, with January’s price being €7680, and February €7500. This has put a marker in the sand for other EU sellers, and those prices are pretty much where EU forward prices are now. The futures aren’t so far away from those prices either, and range from €7900/t now to €7600/t in January, down to €7200/t in April.

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Unlike butter, though, SMP prices are still in the doldrums at €2500/t, but I think there is some improvement over the last few weeks and the futures are encouraging at €2700/t. Together they convert into an AMPE price of around 40p from December through to March, with April at 38.5p.

Cheese is also looking stable – at the moment, although EU prices have been under pressure recently and slipped in line with butter prices. But again, the sentiment has increased. It is for these reasons companies like Arla are saying the outlook is stable.

However, I, and others, can see some pressure on prices coming in February or March. I can see Arla increasing again for December, although not as much as it did in November, and then holding its price for January. But by February and March the trading world will have both eyes on the Northern hemisphere flush, dairy sales will have seen their traditional post-Christmas dip, and caution will be the order of the day. The more milk volumes rise over the next few months, the more prices will come under pressure.

And how volumes are rising! In fact, they are doing so at a pace that we have not seen before. Gains over last year initially were 2% up… then 3% higher… and now over 4% more.

We have never had such high autumn milk volumes before, in fact. To put it in context, from January 1 to September 30, the UK had set new daily milk production records in just nine days – six of them in March, one in May, and two in September.

But October saw 25 out of the 31 days in the month set new record highs, plus the first two days of November. The levels are extraordinary, and fuelled in their entirety by volumes in Northern Ireland as there have only been four days this year when GB volumes have hit record highs

In fact, milk volumes in the region are up more than 10% compared to last year. And with some generous winter bonuses to come (aka seasonality), I can’t see volumes dropping off any time soon.

If these volumes coincide with good weather over the winter and in the spring, then volumes could still be off the charts, and we might see real pressure exerted on the market, especially when twinned with the usual post-Christmas demand downturn.

As usual at the Kite Consulting-Scottish Dairy Hub seminar at AgriScot this week, I put my neck on the block and predicted what I thought prices might do over the next six months.

Last year at the seminar I gave the not so good news that there was nothing on the cards to suggest a 40p milk price, and prices didn’t top that threshold on a standard litre average until this September (although I am conscious some farmers have only just seen their prices creep above that threshold). The manufacturing /cheese-maker price topped 40p in July, so I made the right call there.

AHDB has said that it is expecting average farmgate milk prices to rise to just under 46.5ppl in January, and it may well get there on a Defra price, which is calculated on the prevailing monthly fat and protein percentages, and not rounded to a standard 4% fat and 3.3% protein standard litre or a 4.2% fat and 3.4% protein manufacturing one.

I calculate that the average non-aligned standard litre price for December is just over 43p, and the manufacturing litre is just over 44p, so there will have to be some significant January price rises to hit 46.5p on these criteria, and at a time when almost every processor wanted to hold their December prices, let alone their January ones.

How long it will be before prices drop below 40p is another matter. I think we’ll be above it for Q1, but with milk volumes being what they are right now I can see them dropping below in Q2.

That said, the average price over the first half of 2025 should sit above 40p on a standard litre, and with David Keiley from Kite telling me that the cost of production for most of his Scottish clients is currently 42-43p (and thus higher than that in the rest of the UK), it’s not going to take much to move from a cash surplus situation to a cash deficit one. So there still isn’t much room for manoeuvre, I’m afraid.

Finally, it was great to meet a lot of Scottish dairy farmers at AgriScot this week.

It’s one of the dairy industry’s great dairy debating platforms, and probably the main one for Scottish dairy.

I was certainly intrigued to hear about the progress of the Scottish Dairy Growth Board with its plans to export milk to Morocco.

I’m also speaking again at next year’s Semex conference, so if you fancy even more dairy debate and discussion, plus some good fun and banter with your farming and industry peers, then come along.

Rob Hutchison from Muller will be giving an update about the company’s Yew Tree acquisition earlier in the year, so there’ll be few better chances to grill him on what the acquisition means than there!