Last week, the annual Dairy Industry Newsletter conference was held in London during what many described as the longest ever downturn in UK milk prices.

First Milk is paying a price close to 16p/litre (20.5c/l), Lactalis not much better at 16.5p/l, Meadow Foods to 17p/l and Belton Cheese about 19p/l (24.5c/l).

Across the industry, some farmers are getting as low as 13p/l (16.7c/l) while others who have contracted milk are getting up to 40p/l (51c/l). So it’s doom and gloom and has been for at least 24 months now in the UK.

Some industry analysts suggest UK market sentiment has turned positive and there are some signs the market is recovering.

Why? The handbrake has been firmly pulled on milk supplies. Traders who are selling dairy feel they have hit the bottom and are beginning to look towards selling 2017 product.

The latest figures indicate UK daily milk volumes collected are sliding and sliding fast. Figures now are about 4% to 5% lower than the same time last year, equivalent to a daily reduction of about 2m litres per day (see Figure 1). Some UK experts suggest peak milk will be well back, maybe up to 2m litres.

What else is driving supply down? Cow slaughterings are up, as sterling is helping cow meat sales. However, the biggest driver of lower milk volumes is the milk price to feed price ratio.

Milk price

Milk price as low as it has been for the last 10 years and feed is over £200/t and hence a ratio of 0.9 MP:FP means it is costing more in feed than a farmer is getting back in milk. There is usually a lag in response to this ratio, but given the situation, industry experts believe the reaction could be sharper.

There is still plenty of milk, but as a farmer who has been getting a poor milk price for the last two years said: “Why would I buy more meal to drive milk yields when I’m not getting paid as much for the milk?”

Over half the UK calved last autumn, so those cows will be out at grass now and most are over 200 days in milk, so they will be fed less and less supplementary feed.

Intervention ‘almost’ full

Speaking in London, EU Commission official Tom Tynan said the Commission would have to look seriously at intervention volume limits and stores over the coming days because the volumes of product (especially skim milk powder) going in at the moment is extraordinary.

He said: “When I saw the figure of 22,000t of skim milk powder going into intervention last week, I was amazed. We thought figures of 12,000 and 14,000 were strong, but 22,000 was unbelievable. The intervention ceiling will be reached within two weeks at that sort of pace.”

However, when questioned, the EU official suggested the Commission will continue to support the sector. He said: “The sector has a positive trade balance of €9bn, so we will continue to support the 700,000 farmers in the sector. The Commission is as concerned as you are and we have used every possible tool to try to help the sector, especially since the Russian ban on EU product was imposed last year.”

Who will turn the lights out? - Dairy

There was very little room for any optimism at the second day of the conference in London. Speaker after speaker talked about the prospect for a long time of low milk prices unless something changed to reduce supply.

A combination of expected milk following EU quota removal coupled with Russian, Chinese and global factors have all created the current low global commodity prices.

There were seven speakers in the final session of the Dairy Industry conference in London. David Dobbin, CEO Dale Farm, and Jim Bergin (pictured), CEO Glanbia Ingredients Ireland, spoke representing the northern and southern Irish milk pools respectively.

The topic for discussion was the new market crisis – managing the extremes of dairy market volatility, but many speakers didn’t address the topic at all.

Jim Bergin outlined the recently launched Milkflex loans to farms and a history of the Glanbia fixed milk price schemes.

Among other points, David Dobbin emphasised the need for Northern Ireland farmers to improve productivity.

He said: “It is clear the bottom quartile of farmers have an opportunity to increase margin by 5p/litre by better genetics, etc. Yes, there is a role for co-ops to manage volatility and they must be more market-orientated.”