DAIRY farmers are producing more milk than the market can handle, according to dairy firm Müller UK, which this week announced a heavy cut in its farmgate price, blaming oversupply.
Producers contracted to Müller UK and Ireland Group have been told the price they receive per litre of milk is to drop by 1.9p from November 1, taking the standard litre price to 27.1p per litre. According to the company, the reduction has been forced by the significantly lower returns being generated by its sales of cream, butter and surplus milk. The Müller UK cut follows close behind similar price drops by other milk processors, including Dairy Crest, Arla and Grahams.
Making its announcement, Müller UK highlighted DairyCo figures showing that UK dairy farmers have boosted their production of milk compared to last year by the equivalent capacity of more than 750 extra milk tankers every week.
Saying that the amount of milk supplied by its farmers remained "ahead of even the most optimistic forecasts", the company said it had no option but to trade substantial volumes to spot markets, which were commanding returns significantly lower than the company's own farmer price.
Record milk volumes coupled with weak demand for dairy commodity products have contributed to a 30 per cent year-on-year drop in the value of cream, with the value of butter produced by the company down 27 per cent. Müller's head of group supply, Martin Armstrong, said: "Very high levels of milk production coupled with weaker demand for dairy commodities are having a sharp impact on farmgate milk prices
"Our price for September and October has been one of the best available across the UK for farmers who are not part of supermarket-aligned groups, and despite this reduction we believe that this will remain the case in November. We share the concern of dairy farmers, who are anxious to see some signs of improvement in a very volatile market."
The company stated: "Against the backdrop of a severe and unforecast imbalance between volumes of milk supplied by dairy farmers and Müller's requirements, the company and the Müller Wiseman Milk Group farmer board have agreed a project which will identify mutually beneficial ways of mitigating the problem.
"The initiative aims to find ways of achieving closer alignment between farm milk production and Müller's demand profile, reducing the need to sell surplus milk into commodity spot markets. The project is expected to be completed by the end of the year."
For in-depth news and views on Scottish agriculture, see this Friday's issue of The Scottish Farmer or visit www.thescottishfarmer.co.uk
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