Farm Ireland

Friday 21 October 2016

Milk price recovery 'has legs' despite GDT slip

Claire Mc Cormack

Published 12/10/2016 | 02:30

Kevin Bellamy
Kevin Bellamy

The recovery in world dairy markets will continue to gather pace despite last week's fall in the Global Dairy Trade (GDT) auction, a leading analyst has predicted.

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Kevin Bellamy of Rabobank dismissed the 3pc drop in last week's GDT auction as "a one-off event" and forecast that dairy commodity prices would strengthen further.

He said the recovery "still had legs" as it was based on "a shortage of supply rather than growing demand."

The Rabobank analyst pointed out that world production was down 3bn litres compared to last year and that this shortfall in supply would sustain what he termed a "gentle recovery" in prices.

He attributed the 3pc fall in the GDT to the Chinese national festival known as 'golden week', which meant their traders were not buying last week.

Bellamy's views will be welcomed by the farm organisations who were pressing this week for a 2c/l increase in September milk prices.

Boards at the main processors will meet over the next few days to set last month's milk price.

While returns to farmers have increased since July, both ICMSA and IFA were adamant that the improved sentiment on world markets justified a further lift in farm-gate prices.

Gerald Quain, said a substantial price rise for September milk was "a must" and that the ICMSA was seeking a price in excess of 27c/l.

Describing last week's 3pc fall GDT is "a market tweak", Quain pointed out that auction's prices were up over 40pc since March.

IFA's Sean O'Leary agreed that there was scope for a 2c/l price increase on September milk, and urged co-op board members to "pass back fully the rapidly improving dairy market returns."

"EU milk supplies have dipped below last year's level for June (-1.6pc) and July (-1.4pc) and the EU production reduction scheme will probably exacerbate that trend as we go into the back end," O'Leary said.

"This reflects very poor profitability in most countries, with very strong increases in the number of cows culled - up 7.8pc for the first half of the year, and 9.5pc for June alone in the EU," he said.

"EU returns on September 25, as reported by the EU Milk Market Observatory, were 10c/l higher than in early May, at around 35c/l gross for an Irish product mix. After deduction of processing costs, this is equivalent to a farm milk price of 30-31c/l," O'Leary added.

While O'Leary accepted that co-ops had forward sold product at lower prices earlier in the year, he said these contracts were progressively coming to an end, and new contracts would reflect prices closer to current levels.

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