The blunt message coming from milk buyers in NI is that the current base prices are not going to last this winter, and farmers must be realistic, prepare for what lies ahead, and perhaps resist the temptation to spend big at this year’s Winter Fair.

Speaking to the Irish Farmers Journal, Glanbia Cheese CEO, and current chair of trade body Dairy UK, Paul Vernon thinks that up to 5p/l might have to come off base prices by the end of the first quarter of 2018.

If he is correct, that would take base prices to around the 25p/l to 26p/l mark. What happens after that is unknown.

“The reality is that dairy markets are getting worse every week. It is passed being simply a market correction. The market hasn’t stopped falling as yet,” he said.

To reinforce his argument, he points to the UFU milk price indicator, which is now down to 26.39p/l, having been over 32p/l as recently as September. “If you take 2p to 2.5p off for transport and a processor margin, it is a price around 24p – that is the reality we are now facing in the months ahead,” he said.

In his own company, Glanbia Cheese is holding base in November, but he remains undecided as to what will happen for December supplies. “The longer we all delay a price reduction, the bigger it is going to be,” he pointed out.

If buyers wait until January, there is the added hit of winter bonuses also coming off for many producers at the same time.

Strong supplies

So what has happened in the last few weeks to take the market down? Vernon points to strong supplies of milk across Europe (up 5.2% on this time last year), which are expected to be sustained into 2018. Also, while butter prices are still relatively high, they are back 30% from September 2017.

Meanwhile, there is no floor in the market for skim milk powder after the European Commission recently announced that intervention would operate by way of a tender system next year. Poor skim prices have forced some processors into cheese, which is also now experiencing a price drop.

October milk prices at 32.7p/l

The average price paid for milk in October was 32.7p/l, according to official DAERA statistics. This brings the average over the first 10 months of 2017 to 28.04p/l.

The price in October 2017 is the highest milk price since April 2014 and is 6.16p/l more than the same month last year.

Local production is also up, hitting 166m litres in October, an increase of 11m litres on the same month last year.

Total NI milk production for the year to date now stands at 1.925bn litres, 60m litres more than the corresponding period last year.

Across the UK, milk prices averaged 31.61p/l during October, up from 30.13p/l in September.

UK milk production for October totalled 1.155bn litres, an increase of 4.2% on October 2016. Total UK production for the year to date now stands at 11.98bn litres.

Price drop

Meanwhile, dairy giant Müller was the first processor to announce a price drop for 2018 by informing its 700 Müller direct suppliers that their liquid price would be cut by 1.5p/l to a base of 29p/l from 1 January.

Glanbia Cheese suppliers in Britain have also been notified of a 1.5p/l cut for January, taking the price to 29.5p/l, at a standard 4.2% fat and 3.4% protein.

Lakeland 3p winter bonus kicks in

The first NI milk buyers to declare a price for November milk have remained unchanged from the previous month.

The strongest price so far is from Lakeland Dairies, with its 3p/l winter bonus applying for November and December. With a base of 29p, plus a butter bonus of 1p again retained this month, it leaves the co-op at an all-in price of 33p/l for November.

Glanbia Cheese was first to declare a price for November with the Magheralin-based processor holding on a 29.25p/l base.

Factoring in its 2p/l winter bonus brings it to an all-in price of 31.25p/l before top-up payments on milk quality and hygiene.

Strathroy announced it was also holding its November price at 31p/l, which is broken down to a 30p/l base and 1p/l winter bonus. Glanbia Milk and Fivemiletown has remained on a base of 30p which includes its 0.6p year-round “Fermanagh bonus”.