Food prices may finally be falling, but the dairy category looks set to remain an exception. Tight milk supply is driving up wholesale prices again as butter and cheese producers fight to source milk.
Our eggs and dairy basket increased slightly in price month on month, against a 0.1% overall drop in retail food prices.
The biggest percentage increase came from fresh milk, as all the big four supermarkets increased the price of their standard four-pint bottle from £1.44 to £1.53.
The annual increase in retail milk prices of 8.4p a litre is reflected in farmgate prices, which have followed retail price rises hitting 26.3p per litre, an increase of 26.8% (or 5.6p per litre) year-on-year.
The good news keeps coming for fresh milk producers. A PTF report showed deliveries of UK milk were down slightly year-on-year and supply levels largely unchanged, meaning dairy farmers continue to enjoy scarcity power.
This was not such good news for producers of butter and cheese, who will have to pay more for their milk to guarantee supply, suggesting prices will remain tight despite falling farm costs.
"Our retail price reflects the higher costs we've been paying for milk," said Arthur Reeve, external affairs director for Dairy Crest, producer of Cathedral City. "These higher prices are due to tight supply and increased on-farm costs.
"There is a feeling on-farm costs are beginning to fall, but milk supplies will almost certainly hold prices in place for now. Dairy could well be the exception to falling food prices."
Other analysts cautioned that falling commodity prices would take a long time to impact in the dairy sector, as feed agreements were often set over a relatively long period and some dairy farmers had stockpiled feed. The benefits of falling oil prices could also take time to take root.
The pound's fall against the dollar and its volatility against the euro were also propping up milk prices, the PTF said, as they increased the competitiveness of UK dairy products against rivals both inside and outside the EU. The EU market was also behind combined falls in butter and mild Cheddar prices. Significant stockpiles of butter and Cheddar built up earlier in the year were keeping prices low despite rising costs.
The EU has an "intervention price" on wholesale butter, a point at which it guarantees a minimum price level. Wholesale butter prices came very close to this level over the course of the month and currency fluctuations mean the UK is particularly likely to hit this level.
However, it seems unlikely these low prices will impact the retail price in the short term, as the wholesale price of butter has fallen over a third this year while retail prices have continued to rise, leading some experts concerned that retailers may be profiteering (The Grocer, 25 October 2008, p4).
Rising feed costs caused the price of free-range eggs to rise 15% year-on-year. But although feed prices were now coming down, prices would remain above the levels a year ago, said Mark Williams, chief executive of the British Egg Industry Council. This was because energy, transport and soya costs remained high, he added.
Our eggs and dairy basket increased slightly in price month on month, against a 0.1% overall drop in retail food prices.
The biggest percentage increase came from fresh milk, as all the big four supermarkets increased the price of their standard four-pint bottle from £1.44 to £1.53.
The annual increase in retail milk prices of 8.4p a litre is reflected in farmgate prices, which have followed retail price rises hitting 26.3p per litre, an increase of 26.8% (or 5.6p per litre) year-on-year.
The good news keeps coming for fresh milk producers. A PTF report showed deliveries of UK milk were down slightly year-on-year and supply levels largely unchanged, meaning dairy farmers continue to enjoy scarcity power.
This was not such good news for producers of butter and cheese, who will have to pay more for their milk to guarantee supply, suggesting prices will remain tight despite falling farm costs.
"Our retail price reflects the higher costs we've been paying for milk," said Arthur Reeve, external affairs director for Dairy Crest, producer of Cathedral City. "These higher prices are due to tight supply and increased on-farm costs.
"There is a feeling on-farm costs are beginning to fall, but milk supplies will almost certainly hold prices in place for now. Dairy could well be the exception to falling food prices."
Other analysts cautioned that falling commodity prices would take a long time to impact in the dairy sector, as feed agreements were often set over a relatively long period and some dairy farmers had stockpiled feed. The benefits of falling oil prices could also take time to take root.
The pound's fall against the dollar and its volatility against the euro were also propping up milk prices, the PTF said, as they increased the competitiveness of UK dairy products against rivals both inside and outside the EU. The EU market was also behind combined falls in butter and mild Cheddar prices. Significant stockpiles of butter and Cheddar built up earlier in the year were keeping prices low despite rising costs.
The EU has an "intervention price" on wholesale butter, a point at which it guarantees a minimum price level. Wholesale butter prices came very close to this level over the course of the month and currency fluctuations mean the UK is particularly likely to hit this level.
However, it seems unlikely these low prices will impact the retail price in the short term, as the wholesale price of butter has fallen over a third this year while retail prices have continued to rise, leading some experts concerned that retailers may be profiteering (The Grocer, 25 October 2008, p4).
Rising feed costs caused the price of free-range eggs to rise 15% year-on-year. But although feed prices were now coming down, prices would remain above the levels a year ago, said Mark Williams, chief executive of the British Egg Industry Council. This was because energy, transport and soya costs remained high, he added.
No comments yet