Surge triggered by tight supply and rising demand
According to AHDB market analyst Peggy Clayton, market prices for dairy in the UK have surged in recent months. The rising prices, she said, are due to tight supplies and rising demand.
Butter and skim milk powder (SMP) prices 33% and 44% (respectively) higher than they were last year this time. Mild cheddar cheese has seen an annual increase of 18%.
Dairy products reached a 5-year high in November.
Typically, higher returns to processors would lead to rising milk prices for those on market-related contracts, following a short lag to allow for price changes to flow through the supply chain. However, in the current climate of rapid cost inflation, this may not be the case.
Each processors’ product mix, exposure to recent input cost hikes and success in renegotiating selling prices with their customers will affect how much of the increased market value they are able to realise, said Clayton. This will subsequently affect how they adjust the prices they pay for milk as well as the timing of any changes.