Where will milk price go for 2018? The question every farmer is asking as they plan for 2018 and the question no milk processor will answer as market dynamics change very quickly.

In the past, some have made a stab at predicting and things have changed to make the price change.

This article attempts to summarise some of the underlying conditions that are influencing markets at the moment.

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The downside influences are the fact that those using powders probably have a lot of powder either purchased or in the pipeline so they are not hungry for more powder product.

The other major downside influence is the fact that favourable EU milk prices are building EU supply towards a strong Q2 supply peak. While prices have come down, they are still relatively good in the EU and hence farmers will still supply relatively big volumes.

While the Commissioner talked this week about sending signals to farmers to reduce supply, it is fair to say prices are still probably too good to entice an EU farmer down that road (ie reducing supply).

The upside influences are the fact that Oceania (New Zealand particularly) supply improved only modestly on last season. A lot of New Zealand farmers are still struggling for grass (feed), especially in the North Island.

In the Waikato region there is very little grass in fields. They had rain in January but as predicted it takes time for grass supplies to recover from drought stress in November and December. The other issue in New Zealand is that there is a lot of farmer concern about mycoplasma bovis that has been sweeping through herds. Significant culling has taken place on some farms.

Chinese imports remain strong and this of course remains a good driver of dairy markets. There is no major cloud on the horizon on this at the moment. Again another upside is that improved oil prices are incentivising dairy imports by oil exporters.

Closer to home

So when an email from Fonterra was issued on the 15 January, spelling out that December volumes would be down 6% and its overall volume for the season would be down 3% the market awoke from a Chirstmas slumber. The last auction rallied 4.9% overall, which was the biggest increase for over a year, with butter up nearly 9%.

Buyers immediately hurried out to see what was going on. The gains haven’t been exceptional, with butter up an average of less than €100. But they have been significant given the tone of the market at the end of last year.

For the UK, an increase in currency has eroded some of the gains made in Europe. Butter is between £3,700 and £3,800, and demand is higher for that than it is for cream, which is similar to what it was at £1.55/l to £1.60/l.

Powders have also had a good couple of weeks. German-origin whole milk powder (WMP) increased €30 to €2,545, with Dutch-origin WMP putting on twice that level to settle at €2,500, while French increased to €2,600/t. Skim milk powder (SMP) has strengthened slightly, but not enough to get overly excited about.

On cheese, the official EU cheddar price is put at €3,100 (£2,700). That price is from all countries, and it’s the sort of level which some buyers are dipping into the market at.

UK prices

Arla Foods has dropped its price for February by 2c, equivalent to a 1.67p fall on a standard litre basis, to 28.16p, and a 1.73p drop on a manufacturing litre, to 29.27p. Paynes Dairies has dropped 0.5p to 28.5p, with Freshways down 1.1p to 29.5p.

Currently the UK cheesemakers seem to be holding their own, with few price falls so far. Most are still paying 29p to 30ppl, and over with good constituents.

So far this year, UK milk volumes over the last two weeks have averaged 39.24m litres per day, within 0.5% of last year. EU milk volumes in November were 11,784m litres, which is 681m litres, and 6.13% higher than 2016. US milk volumes in December were 7.83m tonnes, up just 1.1%.