Tuesday 6 January 2015

Slump in Milk Prices

Unfortunately for our dairy farmers the closing theme of 2014, which was characterised by a slump in milk prices, is being continued unabated in to 2015.

At the end of December, Dairy Crest announced a price cut of 1.2p/litre from 1 February 2015 for liquid and cheese milk prices, which follows hot on the heels of the 1.25p/litre cut which was announced to take affect from 1st January.

Also, just before Christmas, the farmer owned dairy co-operative Arla announced a cut of just over 2p/litre which is to take effect on 5th January. This cut will affect many dairy farmers in this area who used to belong to the British dairy farmer owned co-operative, Milk Link.

Milk Link merged with Arla back in 2012 to create a co-operative owned and run for the benefit of its 13,500 dairy members and 18,000 staff or “colleagues” as they are known. The dairy farmers come from UK, Denmark, Sweden, Germany, Belgium and Luxembourg and together Arla has become one of the top ten largest dairy companies in the world.

Thus it shows that no organization, however large, however vertically integrated or however democratically run, is immune from the downturn in the world dairy commodity markets. So all our dairy farmers, to a greater or lesser extent will have to endure difficult times over the coming months.

Rather like the recent slump in oil prices, no-one had anticipated such a sudden and dramatic fall in milk prices but unlike the oil markets where supply could be quickly reduced if oil producing countries decide to cut back production, one cannot simply cut back on milk production because unlike oil wells, cows carry on producing milk daily.

So, with the world dairy commodity markets oversupplied and no quick fix to reducing global milk supply there is no obvious end to the slump in the milk price being offered to UK dairy farmers. However, this imbalance in supply and demand will not last forever and at some stage enough dairy farmers will cease production and/or demand will pick up thereby pushing up commodity prices to a level that that farmers will once again be able to make a sensible profit.


However, in the meantime this will inevitably mean that 2015 will be the end of the road for some dairy farmers in the UK but for those that survive there should be good profits to be made at some stage in the future – the big question is when that will be?  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

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