2015-10-16   facebooktwitterrss

Survey Reveals Milk Prices to Remain Low in 2016

Dairy farmers are preparing for an extended depression in the UK market, with an average forecast that milk prices will rise by just 2p/litre over the next year.

According to a survey by farm accountant Old Mill at the Dairy Show, 24% of its clients expect their average farmgate milk price to increase from its current six-year low of about 24p/litre to 26p/litre this time next year. About 36% expect it to remain between 23p and 25p/litre, with 40% predicting an increase to 27-29p/litre.

Dairy Show

The Dairy Show

“In a way it is a sign of optimism that only 2% of farmers expected prices to drop further,” said Mike Butler, chairman of the Old Mill board. “There is clearly a feeling that we have reached the bottom, and the mood at the Dairy Show was surprisingly upbeat, with a tremendous attendance despite the current downturn. However, with no sign of an immediate improvement in prices dairy farmers are understandably extremely concerned about their future in the industry,”

Spread of farmers’ expectation of milk price by October 2016 (p/litre)

Graph: Spread of farmers’ expectation of milk price by October 2016 (p/litre)
Source: Old Mill Accountancy Survey at the Dairy Event 2015

He asked around 100 farmers visiting the stand what their expectation was for milk prices over the coming 12 months, and the results were pretty gloomy. “Without exception, all those surveyed felt the next 12 months at least were going to be very difficult,” said Mr Butler. “Most farmers are now steering away from significant investment in their businesses and a notable proportion were very definitely questioning whether there was a future for them in dairying at all, which is very sad.”

The survey backed up a report released by Old Mill at the Dairy Show on 7 October, which revealed that dairy farmers were set to lose an average of almost 3p/litre in 2015/16, before accounting for non-dairy income.

“Worryingly, if the majority of farmers’ milk price predictions come true over the next 12 months, the current position is going to change very little which will undoubtedly put extreme pressure on cash flows,” warned Mr Butler.

Fortunately, some banks now seemed to appreciate the practical solutions needed in terms of debt refinancing, he added. “Not only are they offering short-term finance to cover late Basic Payments, they are now considering introducing capital repayment holidays for existing debts and restructuring debts over a longer periods.”

However, processors and retailers had to take heed of the dire straits producers were in.
“There is no question that if the current low prices continue it won’t take long to see a significant shift in the industry and ultimately a drop in productive capacity,” said Mr Butler. “Many farmers are looking at their options very carefully now and I would imagine that exit strategies would be speeded up if it weren’t for the widespread existence of TB within many herds.

“Quite frankly many dairy farmers have simply had enough and processors and retailers should consider how profitable and efficient their own businesses will be when they can only find milk to fulfil 80% of their processing capacity,” he warned. “The industry is on its knees and another 12 months at current levels will simply be too much to bear.”

Old Mill

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