Projected Farmgate Price Movements

Published 21 December 18

The table summarises the expected impact on farmgate milk prices (in three months’ time) resulting from movements in the Milk Market Value[1] (MMV).

There was little change in the equivalent market value of milk (MMV) in December, following the 1.5ppl drops in both October and November. Lower pricing for butter was offset by higher values for SMP, pushing up AMPE. Meanwhile, MCVE saw a marginal drop in line with changes in mild cheddar prices. 

Based on historical relationships between the value of milk on the market and farmgate prices, market-driven farmgate prices should face little to no additional pressure once the impacts of Oct and Nov have been passed through.

It is important to note that the figures simply provide an indication of the direction and size of expected milk price movements. They will not necessarily equate to actual price changes made by individual milk buyers.

 Projected Farmgate Price Changes Table
* figures may not add up due to rounding
Source: AHDB Dairy estimates

The projected change is based on the strong link found between movements in the value returned to manufacturers from the market (MMV) and movements in farmgate milk prices.

On average, it was found that a 1ppl change in the MMV will lead to around a 0.6ppl change in the overall GB average milk price, generally three months’ later.

Differences will arise due to the markets in which milk buyers operate as well as the mechanism they use to set the milk price. These will impact the timing of price movements as well as the size of the change.

Other factors which are likely to impact milk prices will be the degree of competition for milk in the market, changes to available processing capacity, import competition and contract negotiations.

 


[1] The Milk Market Value (MMV) is a weighted average of AMPE and MCVE on a 20:80 basis. This was found to be the best predictor of movements in farmgate prices based on historical data. The analysis was done excluding prices paid on retailer-aligned contracts.