An extraordinary top-up of 0.75p/litre was sufficient to put the prices paid by Lakeland Dairies at the top of the Northern Ireland milk league for May, just above 18.6p/l. The top-up offset most of the 1p/l cut in the Lakeland base price relative to the previous month, while there was no offset against the similar 1p/l drop in base prices at Glanbia Milk and Fivemiletown Co-op. They have dropped to joint second place, but are still paying over 18p/l.

These prices are after deduction of transport charges for a supplier of 650,000 litres per year, with average NI seasonality of supply and with average milk quality of 4.04% butterfat, 3.27% protein, 4.73% lactose, TBC of 17 and SCC of 182.

Although not featured in the league table, prices paid by Strathroy Dairy for May milk would have been over 19p/l calculated using the criteria for this league. Strathroy’s base price for May was down by 1p/l to 18p/l. That was 0.6p/l above the topped-up base of Lakeland Dairies and 1.5p/l above the May base price set by LacPatrick, which was also 1p/l below their April base.

With unchanged base prices at Aurivo, Dale Farm and Glanbia Cheese, the May league positions under 18p/l are topped by Glanbia Cheese Red Tractor prices. These include an assured farm premium of 0.4p/l, sufficient to make all the difference between them and the non-assured Glanbia prices at the bottom of the league.

Similarly, LacPatrick’s Red Tractor supplement of 0.2p/l is enough to put their assured farm premium price close to the 18p/l mark in the May league and above the prices paid by Aurivo and Dale Farm Red Tractor, while the non-assured LacPatrick price is second from the bottom.

Looking at the prices payable for differing qualities of milk and two sizes of supplier (tables 2 and 3), the addition of the 0.4p/l Red Tractor supplement to the prices quoted for Glanbia Cheese would lift their prices into higher ranking positions for May.

However, the LacPatrick Red Tractor supplement is insufficient to shift them off the bottom in most of the categories.

Fane Valley

May 2016 has brought a lift in prices for former suppliers to Fane Valley, following the acquisition of Fane Valley Dairies by Lakeland.

For any of those suppliers whose monthly payments were previously calculated from the officially quoted quality adjustments and official base price of Fane Valley, the May milk price was more than 1p/l higher than their April price. Fane Valley was bottom of the April league on 17.53p/l, off a base of 16.5p/l.

Britain

In Britain, the prices paid vary widely, depending on whether the producer is on a contract aligned to one of the major supermarkets mostly for supply of milk for retail as liquid and with pre-determined pricing mechanisms or a non-aligned contract or subject to ‘‘A’’ and ‘‘B’’ pricing for different portions of milk supply. These pricing systems come with conditions around level deliveries of milk each month and penalties for volumes straying outside those constant deliveries.

This makes it difficult to compare prices paid in Britain with prices paid for milk in NI. First Milk producer co-op operates at least five base prices and terms of milk purchase for different regions and an A price applying to 80% or 90% of the milk supplied plus a B price applying to the remainder of the milk.

Our indicative price of 16.71p/l for First Milk (tables 2 and 3) is a best estimate of its price for milk of the average quality defined in table 1 and collected on alternate days in May.

Milk pricing in NI is heading into more complex territory from 1 June, with the introduction of schemes within which a percentage of the milk bought by Lakeland Dairies will be on their fixed-price contract. Other processors are also considering the introduction of fixed-price contracts for some of the milk purchased.

Milk prices have continued to slide over the past 12 months, with most of the May 2016 prices being around 3.5p/l below those of May 2015 when they were in the range of 20 p/l to 21p/l for average quality milk.

Looking at rolling average prices over the year to May 2016 (tables A and B), these are down by around 6p/l from the rolling averages that producers were paid during the 12 months from June 2014 to May 2015.

This sustained period of pressure on prices means that all of the average prices paid over the past year work out at less than 20p/l for average quality milk, after the deduction of transport charges.

The only exceptions would be prices paid by Strathroy Dairy, whose base prices were 20p/l or more for most of those 12 months.

Apart from that, only good quality milk, earning upward price adjustments, has managed to sustain average prices over 20p/l for the past year.

The top payers across most of the quality categories compared have been Lakeland Dairies, Glanbia Milk and Fivemiletown, with Dale Farm Red Tractor milk prices generally ranked fourth best across the range. It has been a much improved price performance by Dale Farm, whose position during the previous year was below all of the others except the basic United Dairy Farmers price.

LacPatrick are the new occupiers of the bottom ranking across most categories compared, with their prices averaged over the past year being between 0.5p and 1p/l below the top.

Livestock Event U-turn

The Livestock Event 2016 taking place next week at the NEC in Birmingham (July 6 and 7) will be the last of these events promoted by the Royal Association of British Dairy Farmers (RABDF).

The organisers have announced that the 2017 event will revert to its dairy roots and will take place on 6 September. The reduction to a one-day show is to help fit with reduced marketing budgets of trade exhibitors.

It will be known as the National Dairy Event. The change from dairy to include other livestock and the move from September to July took place in 2013.

The 2017 date is close to the UK Dairy Day promoted by Holstein UK and RABDF is hopeful that it will reach agreement with Holstein UK over a possible joint future event. But, in the meantime, it will not include any cattle showing at the 2017 National Dairy Event.

At next week’s Livestock Event, dairy, beef and sheep will all feature in the show ring, with six different breeds including Ayrshire, Brown Swiss and British Friesian cattle societies each staging their national shows. The British Charolais Cattle Society and the South Devon Herd Book Society will also be holding performance championships. The Lleyn Sheep Society will also feature.

Dairy UK will be calling for a free-trade deal between the UK and EU in relation to dairy products.

On enquiry by the Irish Farmers Journal, David Dobbin, who is currently chair of Dairy UK, said that he is ‘‘semi-hopeful that there will be a free-trade deal’’ and he believes that the Irish and UK governments will be doing all they can to ensure that they can maintain a ‘‘special case’’ for all types of trade and other relations between the Republic of Ireland and the UK.

Dobbin foresees a lot of work on labelling and standards that have to be set to accommodate free trade but said it was ‘‘not inconceivable’’ that cross-border movement of raw milk could be stopped (eg if bovine TB incidence differs or if there is an issue such as Foot and Mouth Disease outbreak).

Commenting about the business of Dale Farm, where he is chief executive, Dobbin said that the increasing focus on the UK market and on attaining Red Tractor status for Dale Farm products has left it well placed to cope with whatever Brexit brings.

He said that the expansion of its cheese business has greatly reduced dependency on milk powder sales, while Dale Farm’s recent move into whey protein concentrate is focusing on products for which the market is in the UK.

Whatever happens to sterling exchange rates relative to the euro, the high proportion of sales being conducted in the UK currency should provide more certainty for Dale Farm milk prices within Northern Ireland.

The weakening of sterling can be helpful on prices as it makes imports more expensive, although it won’t have a major effect in the short term as sales of liquid milk, cheese and other consumer products to large retailers are mostly on longer-term contracts, Dobbin said. This has been evident in the relatively few changes made in Dale Farm’s base price over several months and should mean that their base price for June milk remains at the May level.

Commenting on current prices, Dobbin said there are signs of improvement in Britain as milk supply eases. He said that there had also been a ‘‘step change’’ downwards in milk supplies in NI in the second half of June and, with feed sales down by 15% to 20%, the pointers are towards a better balance of supply and demand.

“With EU production dropping and if New Zealand and US output remains subdued, we should see world markets stabilise – but there is a lot of product in store to be shifted,” said Dobbin.

Sentiment

A milk price increase of 1.5p/litre from 1 August has been announced by Glanbia Cheese in Britain. It is one of a number of price increases beginning to emerge there, following a change in sentiment in the market related partly to the slight drop in milk output.

Meadow Foods has announced an increase of 1p/l for July milk and another 1p/l for August. This applies to the ‘‘A’’ deliveries of milk, which are around 80% of the supply. Prices for the other 20% of supply, known as ‘‘B’’ deliveries, are left to reflect spot market prices and these are also believed to be on the way up from below 12p/l reportedly paid for April and May milk.

Some of the August price increases announced follow reductions previously set for July milk. However, there have also been cuts announced for July to September prices payable for milk on aligned contracts, where the reduction in price is related to lower costs of inputs such as feed and fertiliser. The prices on the aligned contracts don’t follow dairy markets down or up.

‘‘Unprecedented uncertainty’’ – these two words sum up the longer-term prospects following the Brexit vote as far as Lakeland Dairies chief executive Michael Hanley was concerned this week.

“It looks like we will have two years without much change in the way we trade, but with fluctuations in currency exchange rate ongoing. That’s something we have become used to working with and we can live with currency movements as long as there is a stable government running the show,” said Hanley.

The implication was that it would be an added concern if the government of the UK loses stability as this could then be reflected in greater volatility of the exchange rate of sterling. Initial indications are that no one in government, including the Leave camp, seems to have a very clear plan of where the UK-EU relationship goes from here.

Further ahead, Hanley anticipates that Ireland could be faced with a ‘‘hard border’’ and the related bureaucracy. Added administration to accompany the movement of goods and services and people across that border would be a strong possibility, which would mean added costs for a business such as Lakeland Dairies operating on both sides of the border.

Lakeland Dairies does ‘‘a fair bit of trade into the UK market’’, so its global logistics base in Newtownards is well-placed to continue that business. But its location may be less appropriate for serving EU markets following the full implementation of Brexit.

“It will probably be two years before we know the main implications,” Hanley believes.

Asked about the more immediate concerns of the dairy market and milk prices, Hanley said that there are a few signs of improving sentiment in the market with the possibility of some recovery, but he pointed out that the prices paid by most milk processors in recent months had not reflected the bottom of the market.

He would not be drawn on the price prospects for June milk, simply repeating that Lakeland Dairies sets prices on a monthly basis and the policy is to return as much to milk suppliers as possible from the sales of a large portfolio of dairy products and after covering the costs of running the business.

The Lakeland base for May milk was 1p/l below the April base, but for the month of May that cut was largely offset by a top-up payment of 0.75p/l. May is a peak month for milk supplies, so any over or under-payment for milk in that month has extra impact on the loss or profit margin achieved for the year.

If no change is made in the base price for June, Lakeland’s prices will be down by around 0.75p/l.

Prolonged weakness of the sterling exchange rate could offer some possibility of an improvement in the milk price, but not necessarily for June supplies as the main weakening of the pound has occurred during the final week of the month and product has been pre-sold at different exchange rates.