Aurivo Co-op (formerly North Connacht Farmers Co-op and Connacht Gold) has maintained a strong pricing policy for milk in Northern Ireland, amid competition from other buyers since Aurivo took over the liquid milk business of Donegal Creameries.

A few producers who previously supplied milk to Donegal are known to have quit the new buyer, both in NI and in Donegal. But those who stayed with Aurivo in NI seem to be doing better than most milk producers here, with a July milk price of 30.13p/l and being placed in the top four prices when compared across the past 12 months.

Under the conditions applying to our July milk league, Aurivo/Donegal was the only buyer paying over 30p/l.

That’s after deduction of transport charges applicable to a supplier of 500,000 litres per year, with average NI seasonality of supply and with average July milk quality of 3.82% butterfat, 3.22% protein, 4.65% lactose, TBC of 16 and SCC of 215.

For July milk, all of the other main buyers reduced their base prices below 30p/litre and the result was prices below 30p in this league table. The second best price at 29.72p/l was paid by Glanbia Milk and Fivemiletown Co-op, who have been paying identical prices since the deal was done for Fivemiletown Co-op members to supply to Glanbia Milk for five years.

That includes a Fermanagh bonus of 0.6p/l paid on top of the base price set by Glanbia, which means that the Fivemiletown suppliers receive the equivalent of the 0.3p/l group bonus and 0.3p/l term bonus paid to the Glanbia Milk producers.

Close to these two buyers for July milk was the price paid by Town of Monaghan Co-op, which was almost 0.5p/l below Aurivo’s price. The prices paid to Monaghan suppliers in the current milk year have not come down as much as others and their ranking in the monthly league since April has been no lower than fourth.

The only other July price within 1p/l of Aurivo was that of Lakeland Dairies.

All of the top five prices are from buyers based south of the border, who are maintaining a competitive pricing policy against the Northern Ireland-based businesses of Fane Valley Co-op, Ballyrashane Co-op, Glanbia Cheese and United Dairy Farmers/Dale Farm.

For July milk, the Aurivo price was more than 2p/l above those of Dale Farm Red Tractor, Glanbia Cheese and the basic prices of United.

The ‘‘red tractor’’ bonus is 0.4p/l payable on supplies to United, whether or not that milk ends up in Dale Farm. The red tractor bonus at Ballyrashane is 0.2p/l.

Prices paid by these NI-based buyers were also beaten by the manufacturing milk price paid at First Milk in Britain (another producer co-op).

The First Milk price was down by 1.5p/l for July and further reductions of 1.25p/l for August and 0.5p/l for September have already been announced.

Price drops in NI have also been on a gradual basis. After a long period of steady prices from September 2013, the NI-based milk buyers made their first cuts in April, while the southern-based ones held until May. Since then, all of the main buyers have eased prices down each month by around 1p/l, with further falls anticipated for August and September. July milk prices are also down by between 0.5c and 1.5c/litre in other European countries, with supply generally exceeding demand.

United Dairy Farmers co-op has increased its milk transport charges with effect from 1 July 2014. The basic call charge is up from £4 to £5 per collection, but the volume charge is unchanged at 0.4p/l.

The minimum charge is up by £1 from £11 to £12 and the maximum charge is up by £1.25 from £16 to £17.25 per collection.

The extra charge for every day collection is up from £2.50 to £4.

Incentive

The pricing is a clear incentive for a producer to have a larger bulk tank and move to alternate day collection, if the producer hasn’t already done so.

For July compared to June, these increases (and the reduction in supply in July) add 0.23p/l to the transport charge for a supplier of 350,000 litres per year collected every day but for the same size of producer whose milk is collected on alternate days, the changes add just 0.05p/l.

For the producer of one million litres per year, the new charges add 0.11p/l to the cost of having milk collected every day, or 0.02p/l if the milk is on alternate day collection.

While these changes increase the gap between United’s transport charges and those of other milk buyers, it is the policy of United to achieve cost recovery on milk collection.

The prices quoted in the milk league and other comparisons in Tables 2 and 3 and Tables A and B (opposite page) are after deduction of the standard transport costs that are applied by each buyer, to try to make the figures as close as possible to the actual payments received by the milk producers.

Individual suppliers may have negotiated special deals with their milk buyer in relation to transport charges. It is not possible to compare these deals in this monthly price league.

According to dairy traders, the milk prices paid to producers in the past month are about 3p to 4p/litre above what the current commodity markets can justify. They argue that this has fuelled continuation of strong supplies of milk, at a time when the demand has been dampened as buyers hold back their purchasing activities while they await lower market prices. It is the classic behaviour in a falling market and it exaggerates the dip in the price.

The UFU Milk Price Indicator dropped last week to 24.36p/litre. It reflects quoted prices and is based on an approximation of the mix of dairy products produced in NI at 45% whole milk powder, 45% cheddar cheese and 10% other products.

Certainly, the reductions in milk prices paid to producers so far this year have been nowhere near the falls seen on commodity markets and in the internet auction of dairy products run by New Zealand-based Global Dairy Trade (GDT). Prices in GDT have fallen by around 40% since February. The drop has mostly been in the past three months.

There was no trade whatsoever on the NZX exchange on the day following the relatively stable GDT auction last week, as traders took stock of the situation.

Nearer home, the weekly Dutch Dairy Board official price indicator this year has dropped by 35% for powder and 18% for butter.

Prices were cut sharply this month. Last week, they were down by €250/t for SMP, bringing it to €2,150/t. That is just 10% above the low point of 2012, when SMP hit €1960/t.

The Dutch guide price for butter last week dropped by €150 to €3,200/t, which is a good 25% above the 2012 low point of €2,400/t.

With a fall of €100 last week, the price for WMP at €2,470/t was just €120 above the trough level in 2012, when base prices for ex-farm milk fell to between 20.8p/l and 23.5p/l for most buyers.

On the positive side, a recent buying tender by Algeria is expected to take some surplus off the market. And it is hoped that current strong prices for butter, skimmed milk powder and cheese in the US will limit the amount of US product coming onto the world market.

No one knows where prices will go next year but it is clear that ‘‘world events’’ can have a major effect on milk prices, whether you agree with the political decisions or not. Milk producers and processors are just pawns in this game.

The milk price depends greatly on Chinese buyers re-entering the market this autumn, while the Russian ban on imports from the European Union (and USA, Canada, Australia and Norway) creates major problems of oversupply in Europe and on the world market. It has been noted that New Zealand has not been banned as a potential supplier to Russia and even though there are only a small number of NZ factories approved for product sales to Russia, that could be quickly changed if needed by the buyer.

EU farm ministers are scheduled to meet next week in Brussels to consider what might be done in response to the market disruption. The Dutch Minister has already been calling for compensation for dairy farmers and some are urging the re-introduction of export subsidies by the EU.

A review of prices payable for product taken into intervention or aids for private storage has been called for – but it seems likely that the European Commission will be slow to implement these or any other new tools in support of prices. The new tools include a ‘‘crisis reserve’’, which has already been mobilised for some fruit and vegetables. A task force is expected to analyse options for dealing with the dairy situation and to explore market opportunities.

The Russian ban has already made a big impact on the dairy industry in Finland and in Eastern European countries that have long established trading links into Russia. These include Latvia, Lithuania and Poland.

In Finland, the main dairy co-op, Valio, has indicated that over 80% of its exports are affected by the Russian ban and the company has already begun laying workers off.

Meanwhile, German, Dutch and Danish dairy processors, who were among the major suppliers of over 300,000 tonnes of EU dairy products that went to Russia last year are also cutting jobs and seeking storage for cheese or finding alternative options for the milk that was going into cheese manufacture for sale in Russia. Any reduction in cheese manufacture will hit the supply of whey, for which there is strong and increasing demand. That could help the price and eventually bring a new balance to the market.

Rolling average prices on way down

With monthly prices running below the prices paid in the same months of last year, the rolling 12 months weighted average prices are falling gradually. However, the prices from all of the main buyers have averaged 32p/litre or more for average quality milk over the past year (Tables A and B). The better payers have averaged over 33p/l for average milk and over 34p/l for good quality.

The prices shown in Tables A and B are after deduction of transport charges for milk supplied on the average seasonal pattern in NI. The lowest of the rolling average prices paid by milk buyers in NI are 2p to 3p above the comparable prices paid by First Milk in Britain during the 12 months to July.

Given the strong prices over the past 12 months, milk processors are hoping that this will have given producers something to ‘‘cushion’’ their dairy farming businesses through the potentially difficult period of lower prices for the remainder of 2014. The timing could not be worse for owners of herds calving from now on. Some relief is anticipated through lower priced concentrate feeds. These are expected to be down by £20/t to £30/t for winter rations compared with last year.