At the ‘trading event’ of 16th February, the GDT price increased yet again, for the seventh auction in a row by 3%. A substantial increase at the next auction due on 2nd March was then anticipated by the market, and indeed this occurred. A dramatic rise of 15% resulted on that day. There have now been increases totaling more than 38% since November last year.
The principal reason for this long run of increases is the strong demand for dairy product from China and Asia. The average price index has now reached US$3746/T, which is the highest it has been since the spring of 2014.
The projected MMV figure for milk price as published by AHDB is predicting minor upward movements through into April. Butter, SMP and the whey element of MCVE are all looking reasonably strong. This is leading to a suggested 0.1ppl increase in March and 0.2ppl increase in April’s farmgate milk price (GB figures only). These are not very exciting increases, but clearly, they are better than decreases. Of course, there will be some milk buyers who have specific situations leading to larger rises – or even falls in their price.
It is easy to get carried away by the prospect of an increasing milk price. However, in practice, the net effects on your bottom line are likely to be minor. This is particularly the case if looked at over a year or more. This is simply because the milk price hardly moves at all if you examine it over a five-year average period. Dairy farming is a long-term business, so in my view, one should look at milk price over the longer term.
As an example, the five-year rolling prices for the last three years, as published by AHDB were as follows:
• Five years ended December 2018 27.35ppl
• Five years ended December 2019 26.82ppl
• Five years ended December 2020 27.65ppl
These are remarkably consistent. Annual figures can rise and fall, of course, with the calendar year of 2016 being a particularly bad example (it was 22.74ppl). It is very difficult to predict any one year’s milk price.
But it would be a brave person who built a dairy business based on anything much more than a 27ppl milk price without being able to justify why. Many justifications are very valid, of course, and can include specific milk contracts, constituents, cow breed, seasonality, adding value and so on. But they do need to be spelled out.
Contact Charles at email@example.com on matters of milk pricing.