Dairy ingredients users urged to enter long-term deals

A change in the European Commission (EC) intervention levels for butter and skimmed milk powder left both commodities exposed to price increases, making long-term deals a worthy proposition, Ian Thomas, md at Greenfield Ingredients said.

This approach could apply to users of dairy ingredients in the bakery, confectionery and ready meal sectors, he added.

“It's quite possible that milk farmgate prices might not increase any time soon, but the EC has already intervened on skimmed milk powder, and butter is likely to follow next,”​ said Thomas.

“So, what we're suggesting to manufacturers is to build some certainty into an uncertain and very volatile world, by locking in prices now – or at least hedging a certain percentage of them.​

‘Positive effect on prices’​

“EC intervention levels are set at 218,000t of storable skimmed milk powder, and 100,000t for butter. With intervention, what you are doing is taking these volumes off the market, which can only have a positive effect on prices.”​

Thomas said attempts to fix prices with customers typically on three to five-year contracts was also part of an attempt to help provide milk processors, and in turn farmers, with sustainable milk prices.

In the butter market alone, prices had experienced a £2,000/t swing in recent years, he claimed.

“So what we've tried to do is develop a range of selling propositions, which would position us in the market to help our customers manage that price volatility,”​ he said. “We have also fully embraced the new European futures dairy market, and that has enabled us to fix prices with customers using a cash-settled dairy future.”​

Remain depressed​

Average UK farmgate prices have remain depressed since the removal of the EU milk quota in April 2015, and the situation has been exacerbated by the Russian ban on dairy imports.

The average UK farmgate price stood at 23.13 pence per litre (ppl) in January, a 0.65ppl (2.7%) decrease on the December average price, according to latest figures from the Department for Environment, Food and Rural Affairs.

Aidan Wilson, md at Ornua Ingredients, claimed there was “nothing at the moment” ​that suggested prices would increase until at least the end of the year.