Thursday 29 September 2016

Dairy slump to last well into 2016

'None of us know when this cycle will end' says top economist

Published 16/09/2015 | 02:30

Milk prices are now close to the crisis levels of 2009
Milk prices are now close to the crisis levels of 2009

Farmers have been warned the slump in dairy prices is likely to continue for another nine months, until after next summer's peak.

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With prices now close to the crisis levels of 2009, Rabobank's dairy analyst Kevin Bellamy said there was little prospect of a lift before China returns to the marketplace.

His comment's come in the same week that Lakeland Dairies cut their August milk price to 26.25c/l.

Ornua's Kevin Lane, who was also addressing the Agricultural Science Association (ASA) conference in Kilkenny, said it was still hard to judge where the "bottom" lies in the milk markets.

"We hope we're getting to the end of that cycle but none of us know when that cycle will end," said Mr Lane, adding that Ornua is hoping for a price increase in early 2015.

Mr Bellamy said that demand was also dependent on the growth of the middle class in China and emerging economies. He said that El Nino could lower production by prolonging drought in Australia. Falling oil prices is another factor depressing demand in oil producing North African and Middle Eastern countries.

"Producers in high cost regions of Europe are likely to slow production.

"While New Zealand dairy company Fonterra is predicting a drop of just 2pc in New Zealand milk output next year, other forecasts point to as much as a 10pc drop," said Mr Bellamy. Much of this will be due to a forecasted increase in culling as prices hit 22c/l.

Debt

Goodbody Stockbrokers director of corporate broking Joe Gill said one plus for Irish farmers was their low-levels of farm debt compared to Denmark and New Zealand.

However, Mr Gill said that with the removal of quotas Irish banks had been focusing on agriculture and farmers were taking on heavier debt burdens.

"If this slump has any positive side to it, it could temper the appetite of Irish farmers to take on debt and Irish banks to provide debt on farm," said Mr Gill.

Former managing director John Moloney, said 40pc of milk suppliers to Glanbia have sold forward a portion of their milk supply at a fixed price.

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