RUMINATIONS By Rob Daykin of Daykin Partnership


SOBERING TIMES AHEAD FOR DAIRY FARMERS IN 2023 AS MILK PRICES CRASH Dairy farmers have had it good, recently. The milk price has been exceptional, and topped 50p in October and 51p in December, according to DEFRA. I also suspect feed compounders have had it good recently too.


That’s because the Milk Price:Feed Price Ratio has been exceptional recently, and the threshold on which it is economic to feed for extra milk has been exceeded for several months - and by a considerable degree at times. This threshold is normally estimated to be around 1.2:1, but it has been over 1.3:1 at times. Milk volumes and feed usage statistics would tend to support this


theory, as milk production soared in the last few months of 2022. For example, there were no days between June and August that set a new record volume, but three days in September, and a whopping 26 days in October and 24 in November. Compound feed usage for 2022 was also up for five consecutive months from September, with November and December up 5.4% and 6.4% on the three year average. In contrast, the organic Milk Price:Feed Price Ratio has been well below the threshold and organic milk volumes have crashed by a double digit level over several months. Now, though, milk prices are coming down fast and in earnest.


One company dropped by 7p in one fell swoop for March, and several others have dropped by 5p in a single month, and by more than that over successive ones. It means the average price is likely to drop to the very low 40p range for April, and to below that for May. In fact several prices are below 40p for April already. This means the Milk Price:Feed Price Ratio will drop below the incentive threshold level again, and the likelihood is that farmers will reduce their feed purchases. Another contributory factor to a potential fall in feeding is the


weather. It has been exceptionally dry over recent weeks and that has given farmers ideal conditions for spreading muck and slurry. A lot has gone onto fields, apparently, and the view is that once the weather warms up the grass is going to shoot up. Given the differential between milk prices and current costs (estimated to be in the low 40p range) there will be a strong temptation to get as much milk from grass in the spring as possible. Will milk volumes fall as a result of this? That remains to be seen,


but market watchers say volumes do have to fall if supply and demand are going to be realigned. Only that will stop the significant drops in milk prices that we are currently seeing. So how low might milk prices go? Well, whatever lens is looked


through the outlook is currently not good, although market analysts say it is better than it was in early February. The ‘glass half empty’ analysts say that prices might drop to the low 30p range, while the more optimistic ‘glass half full-ers’ think it


PAGE 24 MARCH/APRIL 2023 FEED COMPOUNDER


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might be remain in the mid to high 30p zone. Very few, if any, predict it might stay above 40p, but that depends on several factors, not least the real market prices for butter and SMP and cheese, the futures prices in Europe, and the retail price of liquid milk. Currently the commodity prices are converting into a price in the low to mid 30’s, so the market needs to move a lot if the optimists are to win the day. But assisting will be the retail liquid milk price, as this will help to


keep the likes of Muller’s farmgate price higher than it otherwise might be, because of the way its new A&B milk price mechanism works. For years it has been around £1.15 for four pints, but over the last year or so it has climbed to £1.65 for four pints. If this helps the Muller price stay firmer than otherwise, then it may have a spin off benefit on the price of other companies too. We can but hope! Nevertheless dairy farmers are entering into an extremely difficult


period. They may have had it good, but certainly the first half of 2023 is not going to be good for them. The gap between prices and costs is going to be high, and it might not close much in the second half of 2023 either, although it is expected to narrow. The mood among farmers is one of concern. But is likely to get worse before it gets better.


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