Where is the Milk Going to Come From? (Update)

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Gerard Finnan (FCG Midwest)

Look what’s happening currently in the UK livestock and dairy sector.  We have record spring milk production and there is a shortage of milk processing capacity, yet milk prices are the highest they ever have been at this time of year.  Livestock prices have increased in values significantly.  It seems like the drought of low livestock prices is over at the moment, but can it and will it continue?  

I wrote an article last Summer https://www.fcgagric.com/2024/07/15/where-is-the-milk-going-to-come-from /  asking where is the milk going to come from in future?  And ever since milk production has increased month on month.  You might say that I have been proved wrong.  Yes, in the shorter term, but the article was asking the question longer term.

What has happened in the last 9 months?  We have had favourable spring weather in the last 2-3 months, feed prices have reduced, and milk price has remained relatively stable though production has increased significantly in this period.  We are experiencing a record high milk to feed price ratio https://ahdb.org.uk/dairy/milk-to-feed-price-ratio  This has encouraged higher concentrate feeding as it has been economic at the current stable milk prices, resulting in increased production.  Normally when milk production increases like it has in last six months, milk prices fall accordingly under the laws of supply and demand.

What’s more interesting are the reasons shorter term that’s causing this maintaining of Milk Price.  Blue Tongue in Europe, lower dairy cow numbers (-0.9% in January 25) driven by higher cull prices, lower heifer replacements (-22,000 head, <2years old) resulting in higher replacement costs of dairy heifers and other parts of the world are experiencing lower milk output due to environmental reasons (Ireland) weather (NZ).  This is all maintaining world prices of dairy products in the shorter term.

In the UK and around the world there is a marked change on the supply side of the industry with lower dairy replacements in the pipeline over the next 2-3 years.  Farmers who normally import cows from Ireland and Europe are struggling to find the heifers never mind at what price.  Higher beef prices is another contributing factor here.

Tariffs will have an effect in moving the dairy markets about and causing higher food inflation.  What and where is very difficult to predict.The bottom line is that years of under paying farmers to produce livestock and milk has driven so many out of business or has resulted in much under investment that the cost of catching up is so great that it is not feasible.  Beyond 12 months’ time current production looks less certain.  I am still asking where is the milk supply coming from?

Out of adversity comes opportunity.  Most milk buyers are aware of the medium-term supply constraints and are hoping the higher output prices will enable reinvestment to ensure longer term security of supply.  Those livestock farms that are profitable, that have invested and have a succession plan are well placed now to take advantage of this opportunity of a shortage of agricultural output in these sectors.  Costs will continue to rise and the opportunity in higher price times is to hold onto as much of the income as possible by controlling costs.  We see the area of fixed costs of power, machinery and labour as the single biggest area of cost inflation in your businesses.  Viable prices are good, but you need a stable labour force on the ground to enable it to happen.

Don’t wait for prices to fall to look at your costs!  Invest in the right areas of your business with confidence for the future.  Do you have a short- and longer-term plan for your business?  Contact Gerard at gerardfinnan@fcgagric.com or your local FCG Office, to help your business plan for the future with confidence and certainty.

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