Farm Ireland

Friday 28 October 2016

Pressure piles on co-ops to up milk price

Declan O'Brien

Published 14/09/2016 | 02:30

Rabobank's Kevin Bellamy
Rabobank's Kevin Bellamy

Pressure is piling on dairy processors to deliver a significant lift in August milk prices following a dramatic recovery in global dairy markets.

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Falling European output and increased demand from Chinese buyers has seen a sharp turnaround in dairy fortunes over the last fortnight.

While traders had predicted a lift in dairy prices in early 2017, the speed of the recovery has taken many by surprise.

Dairy analyst Kevin Bellamy from Rabobank predicted that the current bounce would not hit the heights of 2014 but he said the recovery was gathering pace.

He said supplies of dairy stocks on world markets had been hit by a combination of low European production as a result of poor weather and prices, a sharp fall in Chinese milk production due to a very warm summer, and floods in Argentina which had curtailed milk output.

However, Mr Bellamy cautioned that demand remained weak in the Middle East, North Africa and West Africa.

He said there was also potential for a significant growth in New Zealand supplies in the short-term, and in US output.

Global index

Market indicators have strengthened significantly, with Ornua's PPI index up 5pc to 85.8 (24.3c/l), while the latest Global Dairy Trade (GDT) auction recorded a 7.7pc jump - its third lift in a row.

Responding to the improved markets, both the IFA and ICMSA are pushing for a major lift in milk price for August.

The ICMSA pointed out that last time the GDT was at current levels was in April 2012 when Irish processors paid 28-31c/l to suppliers.

He added that Dutch dairy quotations were returning 34.9c/l for the butter/SMP mix before processing costs were deducted and VAT added, while the equivalent WMP price was 32.5c/l.

French dairy processor Lactalis had agreed to pay an average of 27.5c/l for 2016."This effectively means that they will pay 29c/l for the remainder of the year," Mr Quain said.

The IFA calculated that the GDT butter and SMP price was equivalent to 32.6 c/l gross, or 27c/l to 28c/l net of processing costs.

The increasing volatility of milk prices is a key part of ICOS's pre-budget submission.

They are proposing that farmers be allowed defer up to 5pc of their income for up to five years through their processor.

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