Dairy chief urges caution on post-quota milk price
Fears for milk returns echoed by EU Commissioner Dacian Ciolos
Ireland's second largest co-op is heading for a massive super-levy bill for the next two years.
Dairygold is 3.5pc over quota this year and is likely to be closer to 10pc over next year, according to Dairygold CEO, Jim Woulfe.
Strong milk prices and the anticipated end to milk quotas in just over 12 months will drive production, but dairy bosses are warning farmers not to bank on the current high prices lasting for the rest of 2014.
"There's a real danger of farmers getting too comfortable at the current price of 39c/l," Mr Woulfe told a Teagasc seminar in the Horse and Jockey, Co Tipperary last week.
These fears were echoed in Bucharest, where EU Agriculture Commissioner admitted to being nervous that a flood of milk next year could undermine dairy markets.
"The market is good at the moment but we know from the experience of 2009 that it only takes a very small over-supply to have a huge negative impact on prices," Commissioner Ciolos told the Farming Independent.
However, he denied that he had any wish for the quota system to be extended for the dairy sector.
"I've no intention of returning to a quota system but we do need the means to react faster than we did after 2009. The establishment of the EU's milk observatory should help that but we may need other measures."
Meanwhile, Mr Woulfe revealed that Dairygold's milk output had increased by close to 20m litres, or 2pc, in the last 12 months. However, the dairy chief told a Teagasc seminar that he was convinced that milk output would grow much faster over the next two years, with a 7.3pc increase expected in 2014 and a massive 16.9pc increase in 2015 as the quota shackles come off.
While supplies eased nationally during the exceptionally wet January and February, dairy processors are expecting supplies to pick up strongly again over the remaining two weeks of the penultimate quota year.
WOULFE EXPECTING PRICES TO EASE THIS YEAR
Both Kerry and Aurivo are expected to come in under quota, but rapidly improving grazing conditions and grass growth combined with high prices of 39c/l are expected to leave the country well over quota by April 1.
However, with butter prices falling by €600/t since Christmas, and large volumes on the Fonterra auction weakening prices further, Mr Woulfe echoed other dairy bosses' warnings that prices will "ease off" during 2014.
"We averaged 38.1c/l across 2013. But that's not a level that farmers should expect. Our average since 2008 has been 31.5c/l. I don't think it's going to drop as low as it did in 2009... and it is possible that it could vary anywhere between 25-45c/l over the coming years,"he predicted.
"The bottom line is that global demand is predicted to continue growing at an annual rate of 2.5pc up to 2015 and only marginally lower than that up to 2020," he said.
Profits at Dairygold look set to jump by over 25pc to close to €27m for 2013 on the back of increasing supplies and global markets that have maintained record highs over the last 12 months.
It represents one of the most successful years ever for the co-op and a complete turn around from 2008 when the processor posted a loss of €0.6m.
With an additional 41m litres due to come on stream from the co-op's suppliers over the coming months, 2014 promises to be the first year that Dairygold breaches the 1bn litre barrier.
"We have already increased supplies by 14pc since 2009, and expect a 57pc increase in volumes by 2020," said Mr Woulfe.