Most prices over 19p/l for July milk

Six of the prices in the latest monthly league table are above 19p/l, with a top of almost 19.6p/l paid for July supplies to Glanbia Milk and Fivemiletown Co-op. These prices from Glanbia Milk do not include a top-up payable to any supplier who is a full member of the Glanbia Co-operative Society, which is understood to be 2c/l.

Interestingly, all of the base prices set for July 2016 are exactly 0.25p/l below those of July 2015 apart from that of Dale Farm, which is down by 0.45p/l. That’s despite Dale Farm’s increase of 1.5p/l over its June 2016 base price, the biggest of the local price lifts this month.

That rise was only sufficient to put the Dale Farm Red Tractor price of 19.21p/l in fourth best position in the July 2016 league, one of a group of four prices between 19p/l and 19.25p/l after deduction of transport charges for milk collected on alternate days.

It is narrowly bettered by the Glanbia Cheese Red Tractor price and marginally above the prices paid by Lakeland Dairies and LacPatrick for milk from its Red Tractor-assured farms, which account for over 65% of LacPatrick supplies in NI.

Lakeland fixed price boost

The Lakeland Dairies prices quoted here do not include any allowance for milk supplied on the fixed-price contract that started in June. Around 40% of Lakeland suppliers in NI have 10% of their milk assigned to that contract with the base price of 20.75p/l applicable until September.

That’s 2.75p/l above the July base set by Lakeland for its regular milk supplies and the effect of including the fixed price portion is to raise the average price paid to the relevant contracted producers by 0.275p/l – making it 19.43p/l for July milk of the quality referred to in this price league.

These prices are after deduction of transport charges for milk collected on alternate days from a supplier of 650,000 litres per year, with average NI seasonality of supply and with average milk quality of 3.98% butterfat, 3.30% protein, 4.66% lactose, TBC of 19 and SCC of 195.

Lakeland’s prices at other standards of milk quality as quoted in Table 1 and for the two sizes of suppliers shown in Tables 2 and 3 also exclude any allowance for a fixed-price portion of supply, so 0.275p/l would be payable on top of those prices for any producer with 10% of milk being supplied on the fixed contract.

Lakeland led the way in lifting prices for July milk as they were first to announce a base price rise. The increase of 1.35p/l rounded up their base to 18p/l and gave a boost after the relatively low base price paid for May and June milk in NI and the fact that the exceptional bonus of 0.75p/l available on May milk did not continue for June supplies.

LacPatrick advance

The opposite was the case at LacPatrick, where a currency advance payment of 1p/l boosted its June price and put it well clear at the top of the league but with that no longer in place for July milk, LacPatrick’s suppliers are seeing their 1.25p/l rise in base price making just a small difference to their overall prices for July and leaving them bottom of the league, if not Red Tractor assured.

Not featured in the league but up in price by 1p/l for July milk, Strathroy Dairy’s base price of 19p/l was sufficient to put its producer prices above those paid by all of the buyers featured in these tables.

First Milk

Meanwhile, in Britain, prices have also been on the rise and our indicative price for July supplies to First Milk producer co-op is up by 0.65p/l based on an increase of 0.5p/l for ‘‘A’’ milk and 2p/l for ‘‘B’’ milk bought on terms and conditions that are otherwise as comparable as possible to milk purchases made in NI. This puts the indicative price at just over 17p/l.

First Milk operates five different regional prices and collections are divided into A milk (usually 90% of supplies) that is processed for pre-determined dairy product sales contracts and B milk (the other 10% of supplies) that is for sale on spot market or commodity trade. The spot market in recent weeks has risen into the region of 27p/l to 31p/l as milk output in Britain has slumped by around 10% overall compared with the same period of last year.

The sudden scarcity of milk available to fill orders left some processors scrambling for supplies and demand exceeding supply quickly lifted the prices for the small volumes of spare milk available.

With all buyers having set base prices for milk supplied in July 2016 that were slightly below their base price for July 2015, the rolling average prices for the 12 months to July are down slightly on the averages for the year to June 2016. However, there is cautious optimism that these rolling averages have bottomed out now and it must be hoped that the prices will pick up in the coming months.

LacPatrick Co-op remains at the bottom end of these price comparisons across a range of milk qualities and for two differing sizes of supplier. The prices are after deduction of transport charges (Tables A and B). The LacPatrick prices here are based on the past 11 months as LacPatrick and August 2015 prices paid by Town of Monaghan Co-op.

The gap between LacPatrick and the top-ranked prices paid for milk from the supplier of one million litres per year (Table B) is around 0.5p/l. For milk from the smaller supplier, the gap is greater.

The prices quoted for Lakeland Dairies do not include the additional amount paid for milk supplied on their fixed-price contract that began in June 2016. That was worth an extra 0.41p/l spread over all litres supplied in June and 0.275p/l over their July litres for any producer who took up that option.

If milk prices continue to rise, a point will be reached where the fixed-price option returns a lower price for the contracted milk than the price obtained for the other 90% of the milk supplied by those producers and it will drag down their overall average price. Only around 40% of Lakeland suppliers have taken up this option.

The Glanbia Milk prices shown in Tables A and B do not include top-ups paid to any suppliers who are members of Glanbia Co-op.

More information should emerge in the coming days on the finer details of the proposed voluntary milk supply reduction measures following a meeting of EU technical experts today (Thursday).

The voluntary supply measures come with a budget of €150m and are part of a wider €500m package announced by European Commissioner for Agriculture and Rural Development Phil Hogan in July aimed at restoring market balance and improving prices paid to European farmers.

The milk reduction measure is expected to pay around 12p/l for every litre of reduced milk supply over a three-month period. There will be four opportunities to apply (October to December 2016; November 2016 to January 2017; December 2016 to February 2017; or January to March 2017).

The deadline for the first application window (October to December 2016) is expected to be 23 September. Farmers will only be able to apply once, and the money will be allocated on a first come, first served basis. If there is a high uptake at the start of the scheme, the milk volumes available could be reduced in subsequent payment windows.

To be eligible, farmers must have delivered milk to processors during July 2016.

It is not yet known if the scheme in NI will be administered locally by DAERA or be left to the Rural Payments Agency (RPA) in Britain. The application form will require farmers to forecast the amount of milk they will produce in the three-month application window, and provide proof of the amount produced in the corresponding three-month period in 2015 (possibly via a copy of milk cheques).

According to information obtained by the National Farmers Union (NFU), aid will only be paid for a maximum of 50% milk reduction within the reference period.

The minimum claim amount is 3,000kg (approximately 2,900 litres).

Where the actual milk delivery reduction is higher than forecast, payment will be for the forecasted amount. There are also likely to be various coefficients applied to take account of situations where actual milk delivery reduction is below forecasts.

Following the end of the chosen three-month period, farmers will have 45 days to submit evidence to show the actual amount of milk produced in the period.

The first payments should come next March (for farmers applying in the first window) with all money to be paid by September 2017.

Adjustment aid

As well as the €150m allocated to fund an EU-wide milk reduction measure, in July Commissioner Hogan also announced a €350m package for ‘‘conditional adjustment aid to support vulnerable livestock sectors’’. The total UK allocation of the fund is just over €30m.

To date, little detail has emerged on how this money might actually be utilised even though it must be paid out by September 2017.

The guidance from the European Commission is that it must be used for measures that contribute to market stabilisation.

The Commission suggests that it could support reducing production, small-scale farming, extensive production, environmentally friendly farming or quality schemes. It cannot be allocated in a one-off payment to farmers, although it could be used to top-up the voluntary milk reduction measure. There is also the flexibility for the UK government to match-fund, although that seems highly unlikely.

According to sources, there is significant resistance from non-dairy farmers within the main farm lobby organisations for this money to be used to top-up the milk reduction measure. Some of the ideas discussed include subsidising the cost of soil sampling or subsidising the cost of applying lime.

LacPatrick Co-op hosted a meeting with leaders of the Ulster Farmers’ Union this week as part of the UFU series of discussions with dairy processors.

On enquiry by the Irish Farmers Journal, LacPatrick chief executive Gabriel D’Arcy said it was good that the UFU is meeting processors at this time and the co-op is well aware that current milk prices are not adequate to provide profit for producers.

D’Arcy referred to the highly volatile situation in which markets and currency exchange rates are fluctuating sharply and stressed that there is a very important role for producer co-ops, which aim to maximise returns to their members. He said that the currency advance payment, which LacPatrick paid as a top-up on its June milk price was an example.

D’Arcy recalled that in the days running up to the UK referendum on Brexit, the advice in financial circles was that the pound sterling would strengthen following a majority vote to remain in the EU and LacPatrick had given an undertaking that its prices to suppliers in Northern Ireland would not be reduced.

This may have involved a forward purchase of sterling at the prevailing exchange rates of around 77p equal to €1 prior to the vote. If LacPatrick made a decision then to hedge its currency rate, this would mean that the co-op was caught to some extent with over-priced sterling now that the exchange rate has moved to around 85p or 86p equal to €1.

Artigarvan

D’Arcy said that the building of the new dryer at Artigarvan is on schedule and is expected to be ready to produce milk powder for sale in the first quarter of 2017.

He pointed out that when the new plant is operational, there will be capacity within Northern Ireland to process all of the milk produced in NI. This could play a vital role if there is a hard border created as a result of the UK withdrawal from the EU or in circumstances where cross-border movement of milk is hit by restrictions due to animal disease precautions.

Asked about the trend towards dairy farms being assured as Red Tractor or Origin Green, D’Arcy said that this is very much customer-driven. Red Tractor assurance does not include some of the measures that apply to Origin Green and LacPatrick will be looking at the possibility of adding some Origin Green requirements to the farms that have Red Tractor status in NI, to be able to market Northern milk to some of its customers.