Outlook

Forward market indicators and processor announcements all point towards farmgate milk prices coming under pressure in the early part of 2018. The drop in commodity markets, particularly for butter, is the main reason for this. It remains to be seen how much further butter markets will fall – some suggest that buyers are holding back on purchases in anticipation of further declines but that can only continue while they have sufficient stock to meet current demand.

Further afield, increased production in New Zealand may add to the current downward pressure on markets in the short-term but, after that, much will depend on how fast production in the Northern Hemisphere picks up into the spring. EU forecasts suggest an increase next year but not at the same pace as was seen a few years ago, which may mean that prices don’t fall that quickly. However, the continued existence of large intervention stocks on SMP will remain a drag on the market.

Of course, price trends will also depend on how demand develops. Expected improvements in the global economic environment could easily lead to higher demand for a range of food products, including dairy. Russia and China will probably remain the key markets to watch but both are notoriously hard to predict. Therefore, while some price declines seem inevitable in 2018, the scale and pace is uncertain at this stage.