June 19, 2009

Global commodity market prices are showing signs of stabilising as the EU milk production season passes its peak, and before the Oceanic season begins.

Despite so, price forecasts for the coming months are mixed. Some analysts predicted higher global prices because of relatively low milk production in key exporting countries, while other analysts suggest that a short-term rise in prices is less likely with the US reintroducing its export subsidies and the latest Fonterra auction recording a further fall in price for whole milk powder.

In the UK, falling incomes from cream are widely cited as a reason for price cuts on liquid milk contracts earlier in the year, but the recent price increase from GBP870 in May to nearly GBP1000 per tonne should help prevent further cuts in the coming months.

UK's milk production for May totalled 1.2 billion litres, down 2.3 percent from last year. Northern Ireland's production fell 8.1 percent due to poor weather and prices, and the average farmgate price there was about 8p/litre lower than the UK for March milk.

The quality of first-cut silage also looks more promising than recent years. With feed prices remaining high, many farmers may take advantage of better quality silage and lower feed buying later in the year to reduce pressure on margins. This may result in yields remaining similar to last year, or decreasing further, suggesting that the UK is unlikely to experience a large increase in production in this milk year.