Record prices for dairy commodities are yet to be fully passed on to farmers, so farmgate prices will continue to rise over the next three to four months, a leading dairy market analyst has suggested.

Delivering a global market outlook at the 2022 spring conference of the Society of Dairy Technology, Charlie Hyland from StoneX said that even though dairy commodities prices are nearing their peak, big increases in recent weeks are yet to be reflected in farmer returns.

“I would suggest prices [to farmers] are going to go significantly north of 41p/l,” said Hyland, who added that there is likely to then be a period of stabilisation before prices start to come back a little by the end of the year.

“They won’t collapse, but move off excessive all-time highs to what are still high prices,” said Hyland.

Despite escalating input costs, he believes that farmers across the world will start to respond to these record prices by increasing production.

Major European producers such as France, Germany and the UK are all currently trending down in production, but Hyland expects that trend to be reversed by the end of the year.

It is a similar story in the US, where there has been a slow-down in collections. “I do expect they will start to increase production quite rapidly,” said Hyland.

In New Zealand, farmers have been faced with new environmental constraints, and also poor growing conditions across much of the grazing season, with production forecast down 4%. However, Hyland thinks volumes will be up in 2022/23. “I do forecast them to recover as it is extremely profitable, even at high costs,” he said.

The pressure on global production has contributed to tight overall stocks of dairy product, which were initially driven down by high Chinese demand in 2021. Dairy imports to China were up 18% last year, but there are signs that the Chinese market is starting to weaken in 2022.

“If China did again this year what it did in 2021, it would be damaging long term to the industry in my opinion. Butter would double, possibly quadruple. There is a pricing point when people won’t buy,” Hyland suggested.

Assuming farmers respond to higher prices by increasing production it will help bring supply and demand into balance. Initially as stocks are re-built, farmgate prices will be stable, and then start to soften as supply increases further. On the other side of the equation, high dairy prices will reduce consumer demand.

“I’m not expecting it to be devastating to the market, but it could knock 2-5% off demand, which sometimes can be hard to get back. Very high prices are still not good for the long-term future of the industry,” said Hyland.

Farms deliver when costs covered

The Marks and Spencer (M&S) milk pool initiative, which pays a select number of UK farmers a price linked to costs of production, demonstrates that if farmers are treated fairly, they can deliver so much more, the Society of Dairy Technology conference was told.

Outlining his views, English farmer, Tim Lock from the National Farmers’ Union, who also chairs the M&S National Milk Pool, claimed that because members are working together with the retailer, they are “not permanently fighting over the price” and can focus on other things.

Tim Lock, NFU, was the first speaker at the Society of Dairy Technology 2022 Spring Conference at CAFRE's Loughry campus, Cookstown, Co Tyrone, on Thursday last. \ Houston Green

The M&S milk pool has now been in place for over 20 years, and since 2015 Lock highlighted how members have delivered various industry leading projects, including around the use of critically important antibiotics, Johne’s Disease and independent mobility scoring. In 2017, all farms became RSPCA assured and in 2020, soya was eliminated from farms amid concerns about its link to deforestation in countries such as Brazil.

Currently there are around 40 farms in the M&S milk pool in the UK, with total cow numbers around 11,000, yielding an average of 9,300 litres per cow. Farms must graze cows for at least 110 days of lactation.

In return, the farmers get a milk price linked to the cost of key inputs such as feed and fertiliser, energy and labour. The price of milk is set every six months, but there is an immediate monthly adjustment if the inputs costs rise or fall more than 1.1p/l. The April 2022 price is 40.03p/l, which is significantly up from the 32.5p/l paid in February 2021.


While he said the M&S scheme “is not perfect”, Lock maintained that the principles demonstrate much of what the NFU has been pushing for around mandatory contracts in the dairy sector.

In 2020, the UK government consulted on plans to legislate for mandatory contracts between farmers and processors. That legislation is expected soon, and is to set out a framework for minimum standards of practice, and potentially define a mechanism that would provide more transparency around how prices are set.

In NI, the Ulster Farmers’ Union have argued for an end to retrospective pricing of milk, although it remains unclear whether the new government legislation around milk contracts will include a dispensation for farmer owned co-ops that dominate in NI.

UK needs higher solids milk, conference told

The UK dairy industry needs to focus more on producing higher-solids milk if it is to be able to compete globally, Patty Clayton from the Agriculture and Horticulture Development Board (AHDB) told the Society of Dairy Technology event.

She explained that while liquid milk still accounts for around 50% of sales, consumption has been flat in the UK since 2000 so the growth in sales is in manufactured products, both domestically and on international markets.

Free market environment

She said that to service those customers, UK companies must be able to operate in a free market environment where new trade deals have opened up the UK market to competitors, but also created opportunities for sales elsewhere.

To do that she said the dairy industry must be globally competitive, and higher solids milk will mean both lower costs in transport and processing. “In future there might be a scenario where milk is concentrated on farm before transport,” she added.

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