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Over the past seven months, dairy farmers have seen markets soar to record levels for butter and powder at GDT and Dutch auctions.
That has been reflected in the milk price indicator (MPI) published bi-monthly by the Ulster Farmers’ Union (UFU), which aims to convert market trends into an approximate milk price.
However, there are two caveats to bear in mind.
Firstly, the MPI is a forward indicator of where milk price is likely to move.
Therefore, there is a six to eight week time lag between the time of publishing and the market having an impact on milk price.
Secondly, the MPI does not take account of processor margin or transport costs.
In most instances, this can be covered by a 3p to 4p/l deduction from the published figure.
Barometer
It is generally recognised that the MPI is an accurate barometer of future farm gate milk prices.
Shown in Figure 1 is the MPI plotted against the average base price (including winter bonuses) offered by NI dairy processors. The MPI figure used is as published by the UFU, but with two months added.
So the MPI published in February 2022 is, on the graph, plotted for April 2022.
The data clearly shows that base price has tracked MPI reasonably closely over the last 12 months.
When winter bonuses are added onto base prices, it tends to take these starting prices above the MPI, and they fall back again once these bonuses are removed.
However, in January 2022, the gap between the MPI and base prices is nearly 4p/l, which is the widest gap shown on the graph.
For the same month in 2021, the two prices were virtually the same.
It suggests that after paying out winter bonuses, co-ops have held back slightly at the start of the new year.
But what the graph really highlights is that there is room for significant increases to base prices over the next few months.
The most recent MPI has increased to 43.05p/l, a rise of 13p/l year-on-year. This points to a base price of around 39p/l through April.
Input costs
Given the surge in farm input costs, such increases in milk price are critical. Higher fertiliser prices alone for a 100-cow herd utilising 45t of CAN are likely to add 3p/l to forage costs this year.
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