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Sunday 4 December 2016

Dairy bosses pessimistic about milk price outlook

Carbery CEO says Teagasc forecast of 1c per litre lift in average prices this year looks increasingly unlikely

Published 20/01/2016 | 02:30

Dairy bosses doubt there will be an upturn in milk prices in the first half of 2016.
Dairy bosses doubt there will be an upturn in milk prices in the first half of 2016.

Predictions that milk prices will increase by 1c/l on average this year are beginning to look overly optimistic, according to some of the country's top dairy bosses.

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Carbery CEO Dan McSweeney said that he was "amazed" by the recent outlook posted by Teagasc.

"I just couldn't understand it - I don't know what planet they are on. The market is returning less than 24c/l at the moment, and spot prices are 13-16c/l in Holland," said the west Cork-based CEO.

"We were subsidising milk prices by 2-3c/l last year, but the market has weakened since then. Even though China still isn't back buying strongly, demand overall isn't too bad. It's all about [over] supply. Milk production in both Germany and Britain is up 4pc.

"The talked about recovery in prices keeps getting pushed out by the likes of Rabobank. Originally it was the first half of 2016, now it's the last quarter," he said.

Irish co-ops continued to sell milk powder into intervention this month, bringing the total to over 2,000t at the equivalent of 25c/l.

The latest Ornua milk price index equates to 24.6c/l - 3c/l lower than the average returned by the marketing body to co-ops in 2015.

"The news isn't positive, and it's very hard to see any upside in the first half of 2016. In fact, it might be more likely that there will be a further drop, so 24-25c/l is our prediction for the next six months," said Ornua's director of dairy trading and ingredients, Bernard Condon.

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"New Zealand's production is only back by 2-4pc, which is half the amount that was being predicted. That wouldn't be a problem, except that Europe is well up, by more than 4pc in the last quarter, so production will be up by 2.2pc in 2015, and 4.5pc in 2014.

Feed prices

"This was driven by quota removal, and fantastic weather and lower feed prices. Because the EU produces seven times more than the whole of New Zealand, it really counts.

"In the absence of a rapid supply correction, the coming months will be difficult, and there are now some forecasts of weak prices into the second half of 2016," said Mr Condon.

The Ornua director highlighted the role of a strong US dollar in maintaining a floor under EU milk prices last year, with EU exports still up in 2015 despite the absence of the Russian market that traditionally accounted for 240,000t of EU annual exports.

However, Mr Condon also highlighted some positives for Irish dairy, pointing to a 14pc increase in butter consumption in the US on the back of more positive media coverage of dairy fats, and the possibility of massive growth for Kerrygold if stiff import duties were removed.

"Ornua sales have increased fourfold in the US over the last number of years, and we could double or quadruple sales if a TTIP deal between the US and the EU was secured," he said.

Ornua announced that it was distributing €15m in a top-up payment to its supplier co-ops following the sale of its US distribution company, DPI.

One of the few Irish co-ops to buck the trend of static or falling prices over the last month is Town of Monaghan, which increased its payment by 1c/l for December milk.

It leaves them 0.5c/l ahead of neighbours Lakeland Dairies, who are on 26.25c/l for December.

Further south, prices are lower, with Kerry and Glanbia paying 25c/l, when the latter's 1c/l member bonus is included. Arrabawn is at 26c/l.

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