Market signals around commodity prices, production at world and EU levels and global dairy auction results are all positive.
But the farming union wants milk buyers give a strong sign to their suppliers that any price cuts now should only be temporary.
This week saw farmer-owned business First Milk reduce prices to its members by between 0.1p and 0.35p per litre – the company’s first price cut since last summer.
NFU Scotland’s Milk Policy Manager, George Jamieson said: “The dairy market is very finely balanced, with global and regional milk buyers waiting to see how supply and demand balance out going forward.
“All parts of the dairy chain are watching the market but given the very serious dent in producers’ cash flow, net worth and confidence suffered over the last two years the response of processors and retailers now is crucial.
“Strong signals and a clear commitment to deliver a fairer share of the rewards from dairy markets are what is needed. Butter and cream prices remain strong and the cheese trade is only marginally down.
“High stocks of powder are affecting skimmed milk prices but across the board there are few drivers for drastic price change.”
While the market has weakened slightly in recent months, dairy futures and the global dairy auction – up 3.6 percent this week – are all suggesting that milk values should at least hold.
Mr Jamieson continued: “That optimism is underpinned by solid forecasts for dairy products, including an expected increase in demand from China, and question marks over supply in some major milk regions.
“The recognised UK dairy market indicators – Actual Milk Price Equivalent (AMPE) and Milk for Cheese Equivalent (MCVE) – have dropped but only marginally. That is encouraging for this time of year as we approach peak production. With AMPE sitting at 27.7p per litre (-0.1ppl) and MCVE at 31.8p per litre (-0.35ppl), farmgate prices should be around 27.5p per litre depending on the end use for that farmers’ milk.
“First Milk’s announcement that it is to reduce its milk prices to members reflects the markets it is in and its Board’s policy to pay a price that is based on returns month on month. After a very difficult time, when First Milk’s prices lagged well behind competitors, much needed progress had raised members’ prices to a more competitive level.
“First Milk’s recovery, rationalisation and streamlining has been achieved to a large extent by the poor prices that their farming members have had to withstand over a prolonged period.
Mr Jamieson concluded: “We know that the new CEO at First Milk, Shelagh Hancock, is keen to add more value where possible. This will be important if members’ prices are to aspire to higher levels relative to competitors. NFUS has met with Shelagh and will meet again shortly to discuss how we can work together for the benefit of Scottish First Milk members.”
Source: Farming UK