FCStoneMilkprices.com UKMFE: Forward curve posts largest weekly drop

This being the 7th consecutive week of decline, the FCStoneMilkprices.com UK Milk Futures Equivalent (UKMFE) last week lost a further 3.07ppl on the forward curve—the largest weekly decrease since we started publishing figures on a weekly basis from Aug’14. This latest much steeper decline is the combination of not only the further weakening in butter prices (as buyers, having seen prices decline steadily in recent weeks, continue to step back and delay forward purchasing decisions) but also the announcement last week from the EU Commission regarding the possibility of replacing the fixed Intervention price for SMP into Intervention with a tender system next spring. All this against a backdrop of milk supply across Europe now increasing significantly.

With the forward curve losing so much value in one week, the situation is starting to resemble the same ugly characteristics witnessed in Jul’14 after the passenger airliner was shot down over the Ukraine, leading shortly afterwards to the Russian ban on European dairy products.

In Jul’14 UKMFE Gross was 30.64ppl having subsequently lost 9.18ppl in the previous 12mths from the Aug’13 peak of 39.82ppl and by the time UKMFE Gross reached the low of 18.04ppl in May’15 a further 11.43ppl had been lost in the equivalent value of butter and SMP.

Taking the latest peak for UKMFE Gross at 39.79ppl this August and compare the current price equivalent of 26.92ppl on the forward curve for May’18 the difference represents a price devaluation of 12.87ppl. Therefore, if actual monthly market returns are to follow the current trend of the forward curve then a very similar price reduction would ensue albeit not down to such an extreme price level as 18.04ppl experienced in May’15.

Note our reference to the summer of 2014 as a crisis. Casting minds back to that time it absolutely was, the Russian ban coming out of the blue knocked dairy commodity prices for a six. The point we’re trying to drive home is that while current returns might be higher today, we are staring at the possibility of similar price reductions moving forward, only this time it hasn’t taken a crisis to pull the trigger just market volatility.

The average price for butter on the forward curve this week is down a further €346/t at €4,492/t (which is now €1,117/t down from the €5,669/t forward curve peak reported on the 28th Aug) with SMP down €138/t to €1,544 (€212/t down from same date peak of €1,756/t).

Sterling recovered some ground against the euro last week with the average EURGBP rate on the forward curve down 0.77p on the previous week to 89.74p (same date peak the rate 93p to the euro)

Currency movement had a negative effect on pricing butter back to sterling on the forward curve increasing the price reduction to £348/t at £4,029/t (-1,239/t on £5,268/t at peak) with SMP down £137/t to £1,386/t (-£247/t on £1,633/t at peak).

The above prices take our FCStoneMilkprices.com UK Milk Futures Equivalent (UKMFE) Gross down 3.07ppl compared with the previous week to 27.97ppl (now 8.55ppl down from the end of Aug’17 peak which at the time was delivering a forward curve average UKMFE Gross of 36.52ppl albeit 2mths earlier out to Dec’18.) UKMFE Net to the producer is down 2.92ppl to 24.57ppl with Total Net UKMFE (reflecting margin/costs as well as a potential level of basis risk that may be experienced in the market associated with Futures) also down 2.92ppl to 22.57ppl.

To download our latest UKMFE spreadsheet incorporating a graph of the forward curve please click Here

Subscription to Milkprices.com is £150+VAT (Total £180) for the first year , thereafter as an existing member subscription reduces to £100+VAT per year.

Simply register at the top of this page and submit details.

Immediate access to the site can be obtained if payment is made through Paypal.

Registration will be confirmed via e-mail, which will also contain your new membership number which should be quoted when submitting payment.

Follow us on twitter @MilkpricesCom