IAN POTTER ASSOCIATES
14th January 2011
Specialist Agricultural Quota & Entitlement Brokers
Telephone 01335 324594 Fax 01335 324584
Website www.ipaquotas.co.uk Email [email protected]
Today
Clean
AMPE
MCVE
Producers in
E&W
£:$
£:€
Crude Oil
Wheat
Soya meal
Issue No. 606
Last Week
Change
4 Weeks Ago
1 Year ago
0.3ppl
28.10ppl
29.65pl
11,102
0.25ppl
+0.05ppl
-
0.25ppl
28.00ppl
29.55ppl
11,137
0.40ppl
25.60ppl
27.78ppl
11,551
1.58
1.19
$90
£200
£322
1.55
1.19
$89
£201
£320
+0.03
=
+$1
-£1
+£2
1.56
1.18
$88
£193
£309
1.63
1.13
$79
£106
£284
(Commodity and currency prices – source BOCM Pauls)
1ppl milk price increase from Milk Link is pivotal
Once again farmer owned co-op Milk Link is leading the upward charge on milk prices, having today announced an
increase in its manufacturing/cheese contract price of 1ppl and a liquid price increase of 0.78ppl. This will equalise the
co-op’s standard litre price to 26ppl from 1st February. The result is that Milk Link’s standard litre price eclipses both Dairy
Crest’s liquid and cheese prices, as well as Wiseman and Arla’s non-aligned standard litre prices.
Ian believes this is one of the most significant and timely milk price movements in many years, coming during a time when
most liquid processors are knocking seven bells out of each other in pursuit of additional volume, and with the clear
expectation that dairy farmer suppliers will foot the bill in the form of price cuts. There is no secret in the fact one or two of
our processors budgeted on commodity markets boiling over in December with prices pegging back in January. They
clearly hoped markets would head south, but they have backed the wrong horse with recent trades and auctions showing
firming commodity markets. The last thing they would have wanted is another buyer to increase prices, especially by 1ppl.
In doing what it has done the co-op has delivered a huge bonus to not only its own members, but the industry as a whole.
Prices simply cannot go down now and ALL eyes are on the other retailers and processors to do their bit having had a
huge shove in the right direction.
However, with yet another confirmed report of a long term fixed price middle ground liquid deal having been concluded
last week one or two of our processors may soon be left swimming naked now the tide has turned.
This price move (and Tesco’s – see below) are sure to clear the price log jam and should allow market forces to flow in
the right direction. They should stimulate the market during the next 14 days and trigger a complete U-turn in liquid
processor’s behaviour. They have had the signal, they have the evidence ( as opposed to the bleating) - now they must
do something or suffer the consequences!
0.3ppl milk price increase from Tesco
The word is that Tesco’s 800 plus suppliers (via Wiseman, Arla and Dairy Crest) will soon be notified of a 0.3ppl milk price
increase from 1st February to help compensate for some of the pain experienced by its dairy farmers from escalating
costs, particularly feed, fertilizer and fuel.
By consulting Promar and re-visiting the costs in January, Tesco have effectively by-passed their own model in order to
do something positive to help its farmers.
Whilst the 0.3ppl may be dismissed by some as a token payment it must be remembered that it is an additional payment
for February and March only. So in March when Tesco and Promar conduct their next annual examination of both the
Tesco market and cost tracker this increase should be converted to annual equivalent increase.
This brings us back to our 1ppl increase which Ian suggested last week, because if you extrapolate the figures to give a
gross annual equivalent and assume feed, fertilizer and fuel costs remain at or above current levels the 0.3ppl interim
increase is almost certain to deliver around a 1ppl or more annual increase on 1st April.
The 0.3ppl increase will take the Tesco standard litre price to 28.5ppl, including the Promar 0.5ppl costings premium, and
if our extrapolation is correct we believe it is not irresponsible to suggest Tesco producers will see a 29ppl plus standard
litre price from 1st April.
In addition, note from January Tesco stores sell 100% British Cheddar, another positive step in the right direction.
All views expressed in this bulletin are those of Ian Potter Associates and a shed load of dairy farmers. It is necessarily short and cannot deal with the various
issues that arise in any detail. As a result it must not be relied on as giving sufficient advice in any specific case. Every effort has been made to ensure the
accuracy of the content but neither Ian Potter Associates nor Ian Potter personally can accept liability for any errors or omissions. Professional advice must always
be taken before any decision is reached
The world dairy market in brief
Last week’s report highlighting the 6% increase in auction prices during the past three weeks requires no further
explanation or illumination. International dairy industry analysts Rabobank report that a combination of the drought in New
Zealand and persistent aggressive and strong buying from the super powers of China and Russia will, in their opinion,
keep dairy commodity prices “buoyant” in 2011. The bank estimates New Zealand milk production could drop by up to
15% in the second half of their milk year.
Wiseman in the line of fire
Iain Smith, Chairman of The Wiseman Milk Partnership, went public this week with his call for an increase in farm gate
milk prices, particularly to the non-aligned suppliers. This follows an earlier public demand for a 27p milk price from the
Dairy Crest Direct producer group.
Are the farming press pointing the gun at the wrong targets?
Today’s farming press contains numerous articles claiming the big 5 retailers are the ones hammering dairy farmers.
Whilst they are by no means angels the press has got it wrong - the core of the current problem is a suicidal battle
between liquid processors. Let’s not forget or underestimate this!
First Milk investment payout
Included in the First Milk January milk payment will be a 3% interest payment to both active and retired members of the
co-op. This amounts to a £1.1m payout, worth around £400 per member or £640 for a 1 million litre producer.
Having seen what Tesco and Milk Link have announced the bottom line is that First Milk need to find more money, and
quickly. An extra £8m will deliver a 0.5ppl price increase to members or £16m a 1ppl increase. Producers will now be
screaming for it – after all, if one co-op who makes cheese can do it why not another who makes cheese?
Following Milk Link’s announcement came a surprising statement from Steve Dunning, the Chairman of First Milk’s Area
Representative Group: "I believe the UK dairy supply chain is failing farmers. There's a clear disconnect between world
market prices and UK milk prices. Three things will happen if this continues: Firstly, with diminishing winter stocks and
rapidly increasing feed and grain costs, low farm gate prices are forcing farmers to make decisions right now which will
result in reduced milk supply later this year, and that decline will be very hard to reverse; secondly, the producers who
remain will look to supply the companies that send products to the world market rather than the UK market; and thirdly,
this will ultimately result in higher prices for UK consumers as we rely on other countries for our dairy supply chain”.
"As an area representative group, we appreciate the progress that the Board and Executive team have made over the last
twelve months to reshape the business. However, alongside this we've also been clear that the company must pull out all
the stops to secure improved returns from our customer base in order to deliver a sustainable milk price for members."
He’s right in a lot of respects, but Ian is not sure members of the co-ops Milk Link and United Dairy Farmers will
necessarily agree that the “UK dairy supply chain is failing farmers”. Neither will a heap of Tesco suppliers. Many First
Milk farmers also believe that its more like First Milk failing farmers, rather than the market.
Price Watch
Pound Shop Bromsgrove £1 for 2 litres of Wiseman Dairies Blue Top milk
England v Ghana Tickets
Tuesday 29th March 2011 – The Stars of Ghana will be the first team to play England at Wembley in 2011 having been
the first team from Africa to reach the World Cup semi-finals in 2010. Anyone interested in up to 5 tickets in a prime
section then email [email protected] for details.
All views expressed in this bulletin are those of Ian Potter Associates and a shed load of dairy farmers. It is necessarily short and cannot deal with the various
issues that arise in any detail. As a result it must not be relied on as giving sufficient advice in any specific case. Every effort has been made to ensure the
accuracy of the content but neither Ian Potter Associates nor Ian Potter personally can accept liability for any errors or omissions. Professional advice must always
be taken before any decision is reached