Projected Farmgate Price Movements

Published 29 August 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).

Uncertainty over how much milk production in the second half of the year will be affected by the hot, dry weather experienced across Europe this summer has pushed up demand in dairy markets.

This has firmed prices on wholesale markets, and hence the equivalent market value of milk. With the expected delay, this suggests a positive, albeit small, increase in farmgate prices in November.

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.