Farmers should stay informed about evolving market conditions and seek strategies to manage risk effectively while capitalising on favourable trends, say Agriculture and Horticulture Development Board (AHDB) analysts.
What’s behind milk production growth?
GB milk production for the 2023/24 season was forecast to reach 12.43bn litres, 0.9% more than the previous milk year, according to AHDB’s December 2024 update.
A combination of both bullish and bearish factors plays around this forecast. GB milk deliveries in September and October were up by 0.7% and 2.6% respectively compared to previous year. November was extremely buoyant with milk volumes up by 4.6% year-on-year. We are now annualising against a year of lower milk deliveries following poor weather.
Market dynamics and price trends
November’s mixed industry sentiment was underpinned by strong seasonal demand and constrained EU supply.
A strengthening Global Dairy Trade also set the firm tone of the market. Although milk supplies were growing, inventory and availability was still weak, particularly on fats. In the latest wholesale survey, butter prices continued to be at almost record highs and increased by 2% and Skimmed Milk Powder (SMP) prices increased by 0.5% compared to October.
Bulk cream and mild cheddar eased slightly by 1.2% and 2.3%. Farmgate milk prices also firmed up with the average Defra price at 43.06pence per litre (ppl) in September 2024, higher 18% year-on-year. The projected farmgate milk prices based on commodity values suggest that farmgate prices should continue to be firm until at least February.
Easing input costs support confidence
In general, inflation in key input costs have eased recently, although they remain at historical highs. In July, the overall Agricultural Price Index (API) for all agricultural inputs was the lowest it has been since December 2021.
The easing of key input costs is likely to improve farmer’s confidence and support them scale up production efficiently. Feed costs in particular have come down to much more reasonable levels. The average feed wheat prices have declined 0.7% to £181.40/tonne in September 2024 and average concentrate prices have declined 11% to £301/tonne in August 2024 year-on-year.
Dry weather in early November extended late-season grazing opportunities, further boosting milk production during the month. Positive price announcements are expected to sustain this momentum, incentivising higher production levels in the coming months.
Global factors and market outlook
The current market is characterised by an unusual dynamic: rising supplies alongside weak inventory levels. This imbalance is expected to persist, as replenishing stock takes time.
China’s potential return to the global dairy market is a promising factor. Although we saw an easing of import demand for dairy products in 2024, consumers in China are becoming increasingly health conscious and are therefore looking to purchase nutritious dairy products, which could provide some support to the market.
What are the challenges and uncertainties?
Despite these positive trends there are structural uncertainties surrounding the sector. Sustained consumer demand at higher retail price points will be critical.
The changes in inheritance tax announced in the Autumn UK Budget could dampen farmer confidence and morale. Stricter environmental regulations, coupled with higher interest rates, are further pressuring producers.
Disease outbreaks such as bovine tuberculosis (TB) and bluetongue virus (BTV-3) pose additional risks. BTV, in particular, has impacted milk production in affected regions including Germany and the Netherlands and could impact production in the UK as midge season begins.
Conflict in the Middle East, China-EU trade frictions and concerns about potential trade tariffs in the US add to the unpredictability of the global dairy market.
Find out how we could support you
