Milk Prices - The Future is White the Future is Bright

Is 40ppl Milk price the New 30ppl?

Who would have thought twelve months ago in the midst of a pandemic that we now would have had two interest rate increases, 7% inflation, fertiliser prices increasing 250% and feed prices 40%, Oil prices 100% and Electricity 250%.  Agri Output prices such as milk, beef cereals etc. continue to rise, with Arla announcing a March standard litre price of 39.5ppl.

Is this milk price sustainable? Can the market afford to pay it longer term? Here are a number of reasons why it will become the norm.

1. The price increases mentioned above are for inputs which make up the majority of farm costs and these are all far greater than the standard RPI inflation. The significant output price increases so far of 25% so far is needed.
2. World market prices on GDT are increasing for dairy products by 4-8% per month.
3. There is a shortage of milk in the UK with production down shorter term due to poorer quality forages and farmers reluctance to feed very expensive purchased feed.
4. The War in the Ukraine is going to put more upwards pressure on all the commodity inputs mentioned above as the Ukraine exports most of these onto the World Market.
5. There are a lot of dairy herd sales booked with auctioneers for 2022. This will reduce the production short term. Normally existing herds have bought these cows and increased their herds to compensate.  Longer term 3-5 years with the emphasis on sustainable farming methods, environmental and carbon footprint considerations from government and milk buyers, there will be a significant reduction in N fertiliser, which has a significant impact on stocking rates on grass-based milk production systems. These pressures are being applied across Europe and NZ also in different guises as phosphate quotas, cow quotas, carbon footprint, required improvements to water quality by upgrading silage and slurry storage facilities etc.
6. There is a move towards milk solids production and less emphasis on white water as the dairies are paying more for the milk constituents currently. Though yield per cow will continue to increase in the future, this will be more milk solids based than litres.
7. Labour availability and the industry’s ability to manage and retain labour will curtail expansion by the remaining dairy farmers left in the industry. 

All the above points lead to either reducing supply of milk or restricting the increase in production by those who are left in the industry. Some would argue that if dairy products increase in price by 25% longer term, will the consumer pay for it with all the other inflationary pressures that they need to contend with currently?

Food has been too cheap for too long. The consumer in the main will pay for quality British food. This is the industry’s opportunity to reset prices for the longer term to ensure the farmers that are left have sufficient funds to pay for the increased compliance costs that will be imposed on the industry in the next 10 years. The future is bright in the industry for those that are courageous, plan and invest for the long term. Being average is no longer acceptable.

As consultants we are dealing with professional operators who accept that they haven’t all the skills in managing their businesses and we help fill those skills gaps as part of their team managing the farm efficiently to ensure that they are in the top 25% of dairy farmers longer term.

Is your Dairy business fit to take advantage of the changes that will happen to your business in the next ten years? If not contact Gerard on 07976 426420 or e-mail gerardfinnan@fcgagric.com