The GDT average price index continues to make significant gains. At the latest auction the index rose by 4.2% to average $4,840. This rise follows 4.1% and 4.6% increases held at events on 1st February and 18th January respectively. The last time the index was this high was at the end of 2013/beginning of 2014. All products recorded a rise; butter and cheddar are now at an all time high;
- SMP up 6% to $4,295
- WMP up 4.2% to $4,503
- Butter up 5.1% to $6,686
- Cheddar up 3.5% to $5,881
UK farmgate prices also continue to increase;
- Muller has already announced a 1ppl increase from 1st March resulting in a standard liquid litre prices of 35ppl, with Muller Direct Organic suppliers receiving 45ppl.
- Saputo has announced a smaller increase of 0.25ppl from 1st March which means its manufacturing standard litre is now 36ppl
- Suppliers to Barbers (cheese) will receive a 1.3ppl increase from 1st March, taking its manufacturing standard litre price to 36.26ppl.
- At the time of writing Arla had not announced its March price, but suppliers received a 1.6ppl increase in February taking producers’ standard litre price to 33.6ppl.
Tight supplies have been the key driver for the rise in farmgate prices and, with high input costs, farmers have not been incentivised to ‘push’ for extra production. Latest forecasts from the AHDB show GB production for the 2021/22 season (April to March) totaling 12.4 billion litres; down 1.2% on the year. Furthermore, yields were unexpectedly lower in the latter part of 2021 which will have an impact going forward into 2022. In addition, the long term decline in the dairy herd is expected to continue, as well as high input costs maintaining downwards pressure on production. Whilst the forecasts for 2022 show a slight rise compared to 2021, output will be 0.6% lower than 2020.
It is a similar story around the world. Global milk supplies from the key dairy exporting regions are set to remain tight in 2022; only forecast to grow by 0.6%. Similar to the UK, high input costs, labour shortages and increases in environmental requirements are offsetting strong global milk prices.
Demand has also remained robust. Domestically it has shifted from the foodservice sector to to retail during the pandemic, but this is expected to reverse during 2022 as food service recovers. With low stock and an increase in demand from the foodservice sector, imports could start to rise.
With milk supplies so tight, processors have been keen to encourage production, hence the significant rise in farmgate prices between November and February 2022. And, with increases in production limited, low stocks, and demand robust, prices are expected to remain good for at least the first half of 2022.