IP Dairy Farmer – October 2014 (Original Uncut Version)
The dairy industry is in crisis. Globally farmers have responded to higher milk prices by producing 5% extra milk than normal, which has outpaced the predicted annual increased demand (+2.5%) by a factor of 2 to 1. Marry this to the Russian ban, plus a Chinese cooling in demand, and prices have gone south big style.
With Russia it’s a political ban that has created a vortex all farmers are paying the price of. The Russians buy the equivalent of 1.5% of total EU milk production, predominantly in the form of around 300,000 tonnes of cheese and butter.
The Commission has stepped in, agreeing Private Storage Aid (PSA) to include most types of cheese. Note, though, PSA for between three and seven months (the maximum) will end at the same time as the EU’s spring flush, which is not smart. Consequently the Irish are lobbying for a one year storage period to coincide with what is hoped will be the end of the ban. It’s a good shout, but it’s of minimal value to any processor who needs cash in the bank now. Cheese in storage is not the same as cash in the bank.
There is now serious lobbying by various member states for the Commission to do more to bring stability, and a more confident outlook for the industry. A front-runner is to remove butter and SMP to intervention but at an inflated price, as opposed to the current 17.5ppl IMPE price. The Irish are calling for the IMPE safety net to reflect current production costs with others suggesting a revalued IMPE north of 23ppl. There is also a push for export refunds for processors seeking alternative export markets to replace lost Russian sales.
PSA and intervention will help balance a depressed market, however, in reality all they do is take product off the market now, only for it to reappear at a later date when the market conditions have improved.
There are even rumblings of pressure to retain milk quotas beyond the 31st March 2015. This has triggered a mini run on milk quota to the point that we now have buyers outnumbering sellers by a factor of 9 to 1. Add to this the imminent 21st October deadline for trading single farm payment entitlements and a host of claimants keen to realise some cash for their 5ha or less of entitlements and our office is buzzing!
Not long ago significant numbers of dairy farmers pushed for their milk price to be linked to commodity prices. Many succeeded, but now the cream has turned sour and some of those very same farmers are claiming we are “an island of fresh milk consumers and are divorced from world prices”. That’s called picking and choosing when it suits!
Others took advantage of short-term contracts linked to commodity prices. Some simply joined the growing numbers of milk tarts who signed-up for the extra money, and as soon as someone offered them an extra 0.5ppl in went their notice. But for some it has ended in tears: large and small producers who are either out of contract or under resignation have nowhere to go, and no processor really wants them. Few, if any, processors are recruiting.
Those who have secured a safe home for their milk need not worry. For some of the tarts it’s a simple choice of either accepting a poor world commodity linked price or exiting the industry.
Processors are not exactly sitting back smiling, because some have invested heavily in new facilities, which need to be full to capacity. They don’t want producer confidence dented to the point farmers either cut back on production or leave. Sadly for some that decision has already been taken, though.
Those who went public last year with the claim that we should increase domestic production have now either gone on mute, or gone all together. Some clearly aren’t here (in the real world) at all. And this brings me to a press article from Mole Valley Farmers only days after a dozen or so milk price cuts, including the infamous 3ppl First Milk one! The headline was “Drive for more litres in light of low feed costs”. In the article I was gobsmacked to read the conclusion that “it is well worth pushing for extra litres this winter, despite the recent drop in farm gate milk prices.” Dr Chris Bartram, Mole Valley’s Feed Solutions, Head of Nutrition, went on to say that, at current feed prices, “That brings an astronomical possible milk price to feed cost ratio of 2:5 to 1 based on an average milk price of 30ppl”.
Well Dr Bartram, it may be good for your employers to push for extra litres in the hope it helps maximise the output from Mole valley’s feed mills, particularly the new one in Ayrshire, but it is NOT going to help processors, or the milk price right now! The days of an average UK paid out milk price of 30ppl have gone for most and the evidence was before your eyes prior to the article!
In this edition I was hoping to write about the review of the Voluntary Code but more than seven months since its announcement and all is silent. Yet, initially, it was “expected to be concluded quickly, by the Spring.” Surely the review chairman didn’t receive a postbag of farmer comments? On that score I have asked for details on the number of submissions he received, excluding the staunch defenders of the code eg the NFU and NFUS. More on that soon!
Finally, two requests: first to First Milk. Please rename your so-called liquid contract, or merge liquid and manufacturing and just have one. It’s not a liquid contract any more it’s predominantly an ingredients or commodity one. My second one is for everyone to keep an eye on comments relating to Morrisons. It is currently out to tender for its liquid milk requirements. If Dairy Crest retains some of it, for instance, and then issues a comment to the City similar to when it retained the Sainsbury’s contract in 2013 (“Although the conditions of the contract will change from 2014 our on-going cost reductions are expected to offset any financial impact on our business” i.e they got the milk much cheaper!) then we will know Morrisions have screwed the processors. And we can’t afford for that to happen to the liquid processors. It is also not right or ethical for Morrisons to assume that the processors will simply pass the shortfall back to the farmer. That’s the attitude that prevailed before SOS Dairy, remember.
Somebody Stop Me