Chairman’s Update
The 2024 calendar year was certainly a year of two halves in terms of dairy farming economics. The first 6 months was a period of low milk prices (Müller Direct 36.5ppl until March 2024 and higher costs). From July onwards, milk prices increased, and costs typically reduced. Pricing now appears to be in a period of stability with the Müller Direct price being 42.25ppl from November 2024. The recent announcement of a hold for April 2025 shows stability for 6 months.
But is 42.25ppl (base price) sufficient to secure a long-term future supply of sustainable liquid milk?
In September 2024 the answer to this question would probably have been yes. Milk supply was rising at a rapid rate with production peaking at almost 5% higher than the previous year.
However, the answer to the question now is possibly not. Despite record milk to feed price ratios, milk production has over recent weeks reduced to less than 1% above the same period in 2024, although the most recent week has increased slightly. Cow prices suggest there is a shortage of productive dairy cattle, and this is being fuelled by record cull cow prices.
And it is not only the UK where production is slowing. The two main milk producing countries in Europe (France & Germany) are currently 3.5% and 2.5% lower than last year. With the forecast global growth in demand for dairy likely to be greater than the growth in global milk supply, the prospects for dairy economics are encouraging.
Despite base prices remaining stable, the balancing part of our milk is under pressure due to the reducing value of butter and skimmed milk powder. The ingredients percentage for February 2025 is confirmed at 11.93% with a price of 34.87ppl, independently calculated by milkprices.com. This is comparable with the Yew Tree ingredients price of 35.5ppl for February (the difference being the AHDB v EEX quotations used by milkprices.com to calculate the prices).
I suggested previously that the cost of production has reduced over the last 12 months. This has had a direct result on our retail contracts that utilise cost of production models. Whilst the models have served the industry and many of our members well for over 18 years, the MMG Board believe that the current models need to evolve to return a sustainable milk price to encourage long term supply.
Our organic farmers have recently benefited from an increase of 1ppl from April 2025 taking their price to 56.75ppl. Organic milk production remains subdued, with demand increasing. Our organic members need to have the confidence to invest in their businesses, and to this end, several initiatives are currently being worked on which will be shared with those members in the coming months.
From March 2025, the revised seasonality scheme starts. In summary, production over 102% of last years rolling supply will incur deductions for March to June 2025. Please refer to later section for more details.
The next 8 weeks will be integral in milk pricing for the remainder of 2025. The level of Spring peak, coupled with the rate of decline after, will determine the next milk price move. The MMG Board will continue to push for a competitive long term sustainable milk price that we all need to invest in our businesses.