Arla cuts milk price, blaming dairy market tumble

Arla underlined the retreat in the dairy commodity market by blaming it for a cut in the milk price it pays farmers, ending a long run of increases to payouts.

The Nordic-based dairy giant, which had raised its milk price twice this year, after a succession of increases in 2013 too, blamed the drop in the payout on a "significant negative trend in commodity markets".

"While the business remains strong, unfortunately, we are not immune from trends in the global dairy markets," the co-operative said, in a statement to its UK suppliers.

"Consequently, we have had to reflect some of the recent downward movements in the on-account price."

The reduction, which kicks in on April 28, affects only the co-operative's 12,600 farmer members, with the payment to other suppliers, who are paid at a lower rate, kept the same.

In the UK, this means that farmers will receive 33.74p a litre, compared with the 35.01p a litre they currently receive, bit remaining above the 33.50p offered to non-member suppliers.

Market retreat

The downgrade follows a sharp reduction in world dairy commodity markets, which have fallen more at GlobalDairyTrade, the benchmark auction run by New Zealand's Fonterra, the world's top milk exporter, have fallen more than 20% from an early February high.

The decline has been blamed on a strong start to the northern hemisphere production season - after hefty growth in output in New Zealand, the biggest exporting country, too as farmers maximise output to exploit prices which remain at historically elevated levels.

The US should see a 2.4% rise in milk output this year, according to the US Department of Agriculture, while production in the European Union started the year growing at twice that rate.

Data on Friday showed UK milk deliveries averaging 41.5m litres a day for the two weeks to April 19, up 13.0% year on year.

'Prices under pressure'

Arla's downgrade follows a series of cuts by Dutch rival FrieslandCampina to its milk price, from a peak of E44.00 per 100 kilogrammes of milk in November and December.

FrieslandCampina on April 7 announced a reduction of E1.25 per 100kg of milk, to E42.50, in its monthly guaranteed price, also highlighting a production rise.

"Prices for cheese, milk powder and butter are under pressure due to higher milk supplies in Western Europe," the co-operative said.

Its milk price nonetheless remains well above the recent low of E32 per 100kg reached in summer 2012.

There has yet to be any sign of the southern hemisphere processors cutting milk prices, which they ramped up strongly last year to attract product, enabling them to cash in on strong import demand from the likes of China.

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