We understand that most major processors are now commencing negotiations with retailers for price increases on liquid milk.

The NFU is supporting these negotiations as much as we can through our own lobbying efforts. This all started back in the autumn when we produced our work on exception production costs, was followed up by the invoicing campaign and since Christmas has moved into face to face lobbying of retailers and processors.

We have held meetings or had extensive conversations with most of the key players. Although we're not directly negotiating, we understand that the work we've produced is being used as a catalysts for more detailed production cost work that helps to substantiate a case for a price increase by each of the major buyers.

Although the outlook for an increase from the liquid market appears more optimistic than we might have thought earlier on in the year there are still many hurdles to cross.

Roughly speaking these could be described as:

• Getting a retailer to part with cash! This is the hardest bit of all - there is no compassion in this game that means retailers willingly part with some of their margin, especially if they fear that others will not.
  
• Anticipation over the outcome of the OFT investigation into retail price initiatives between 1999 - 2003. There's not much intelligence on when this might emerge or what it will say but it hangs over the negotiations (though of course may be being used as an excuse for inertia).
  
• The risks of dilution to the middle ground. Some retailers hate the fact that when they pass back increases for producers many smaller middle ground customers do not. This leads to a dilution of any increase that is passed back. The big problem here is the sheer level of competition in the middle ground market. This takes place not just between the 3 big processors (although Arla is now largely out of this game), but also with other dairy companies such as Dairy Farmers of Britain, Medina, Freshways, Paynes dairies, right down to some farmhouse bottlers in some areas.

Looking at the wider dairy market, cheese consumption remains on the increase, with stable prices for mature cheddar for over three years, the mild price looking relatively solid despite some exchange rate woes (which may make Irish cheese ore competitive later this year when they come back into the market after the spring if the rate remains constant) and stocks fairly balanced as a result of lower milk output and firm protein markets.

What is surprising is that after yet another month on month increase in the whey powder price, no-one appears to be asking for a significant increase in the price of milk for cheese.

Whey prices are volatile but seem to be exuding a large degree of strength in part owing to low availability of SMP for calf feed putting whey in demand and boosting the price.

The only downside to this is that it's knocking returns on the continent for veal calves as it's becoming uneconomic for some finishers with powder prices being where they are.

Milk production remains tight in the UK, but increasing steadily elsewhere in the EU. Weekly production figures show UK production behind the comparable week last year, though constituents are higher, reflecting lower output and contract changes (more bespoke cheese contracts?).

On the whole, the outlook for 2007 remains at worst stable and at best, the chance of some modest price increases for producers at least in the first six months of the year.

Going forward, the NFU will be analysing the full results from the dairy invoicing campaign, launching the Why Dairy Farming Matters campaign and the Great Milk Debates with the WI and reviewing the costs of production work - British Milk What Price that we produced jointly with RABDF in 2006.

TheCattleSite News Desk