ACCORDING to AHDB's Milk Price Calculator, farm prices in the UK are not currently reflecting the true market value of cream in payments for butterfat. Milk buyers tend to follow one of two approaches when milk prices are adjusted - either the butterfat and protein payments are both changed in line with historically set ratios, or the base price is adjusted. Neither approach is currently giving the full market signal to farmers about the value of butterfat.
Between April and December 2016, all dairy commodity markets rose, but it was the butterfat side that showed the biggest increase. During this period, cream values in the UK rose from £800 per tonne to £1800 per tonne. In gross terms (market value as butter), this is equivalent to fat values rising from 2p per percent butterfat in April to 4.5p per percent butterfat by the end of the year, a 125 per cent uplift.
Despite this, a number of farm-gate prices continue to have the same payment for butterfat in December as they had in April. Those that have seen an increase in butterfat payments have seen movement that maintains the historically set ration between butterfat and protein payments.
In defence of milk buyers, the overall value of butterfat to individual processors will be dependent on their product mix and how much of their fat is sold on the open market. There is also a risk of changing farm-gate payment structures too often, to reflect short-term market movements, because it can send mixed messages on what is valuable to the processor. For example, cream values could swing dramatically from one month to the next and, if butterfat payments to farmers matched those swings, it would be extremely difficult for a farmer to alter milk composition so quickly to react to such a rapidly changing value.
That said, the risk of not passing the true value on over an extended period of time can be even greater. If farmers are unable to react to the market because the signals are being "muffled" by the supply chain, inefficiencies are likely to arise. Also, prices could become more volatile because the market has to move even further before there is a supply-end reaction.
Market round-up
C&D Auction Marts Ltd sold 4206 prime lambs in Longtown on Thursday to a top of £107 per head and 281p per kg to average 167p (-8p on the week).
The firm also had 3415 cast sheep forward when heavy ewes sold to £140 for Texels and averaged £69.28 (-£4.60), while light ewes peaked at £67 for Cheviots and levelled at £34.85 (-26p). Rams sold to £124 for a Texel and averaged £68.12.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here