February 4, 2010

Stronger pound threatens UK milk prices


UK milk price recovery is being threatened by the strengthening pound, which has reached its strongest level for six months.

This situation is in contrast with 2009 when the pound weakened, protecting the milk industry from the collapse of farmgate prices, said Nick Holt-Martyn, director of The Dairy Group.

The improved price prospects resulting from a stable global milk output, rising GDP and gradually falling stocks will pass the UK by if the pound continues to rise, said Holt-Martyn.

He noted that farmers' shares of market returns were very low.

"With cheese production the lowest for five years, together with stability in the commodity markets, this should mean higher farmer prices in the UK. A gap is opening between market returns and farmgate prices - the normal time-lag suggested a January increase, which looks overdue," he said.

But if nothing dramatic happens to the pound, this year should improve gradually, resulting in higher milk prices, Holt-Martyn concluded.