Archive: Sharp fall in MCVE suggests further UK farmgate price pressure

Published 5 November 14

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The current position of MCVE*, compared to average UK farmgate prices, suggests that the pressure on prices is still evident. MCVE stood at 26.30ppl in October 2014, 30% (11.3ppl) lower than a year earlier. However, over the same period, the average monthly farmgate price, calculated from a basket of contracts in the DairyCo League Table (excluding aligned liquid contracts), has fallen by around 8%. Over the last few years, while both farmers and processors have been profitable, MCVE has generally tracked around 3-5ppl above average farmgate prices. This is in contrast to the period from 2003 to 2006, when profitability was relatively lower for farmers and processers, the difference was generally 1-2ppl. However, as a result of the larger fall in MCVE than farmgate prices, during the first 10 months of 2014, this gap has reduced to an average of 0.8ppl and has in the last month fallen to -2.8ppl.

So what does this mean? While there have been significant milk price cuts, manufactures have experienced even more pressure on their margins over recent months, as indicated by the reduced MCVE/farmgate price differential. However, with farmgate prices in recent months now above MCVE for the first time since Spring 2009 the pressure on farmgate prices in the coming months is unlikely to disappear. Although, until wholesale prices recover and both parties become more profitable, it is likely the differential between MCVE and farmgate prices will be below the 3-5ppl seen in recent years.

Farmgate - MCVE 11.14

*The Milk for Cheese Value Equivalent (MCVE) provides an indication of the value returned by processing milk into mild cheddar and its associated by-products. For more click here. It has been chosen for comparison as both liquid and manufacturing contracts track MCVE closer than AMPE.