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Independent.ie

Monday 1 May 2017

Milk price drop fears grow amid increase in supply

Darragh McCullough

Darragh McCullough

Concerns are growing that milk prices may drop if the current surge in global supplies continues.

The figures released last week show that the domestic milk supply is up by 13pc since the start of the quota year in April.

This increase is mirrored internationally, with global milk supplies for the first five months of this year up by 3pc.

This rise is a worry among industry analysts since demand is estimated to have increased by 1.8pc in the same period.

"It's clear that we need a supply correction fairly soon," said ICMSA president Jackie Cahill.

"Not one dairy-producing country is down this year. It's only a question of time before surplus supplies start to hit prices." Mr Cahill believes that Irish milk prices will hold for most of this year but he is worried about the impact that increased global supplies will have on returns next year.

"Droughts in New Zealand and Russia last year, floods in Pakistan and the food scare in China helped match demand with increased supplies elsewhere," said Mr Cahill.

Milk production has stormed ahead in all the major milk-producing countries on the back of favourable weather and prices this year. Argentina is up 18pc, New Zealand is up 5pc and the EU has risen 2.5pc.

Meanwhile, a Rabobank report forecasts this year's global demand for dairy products will increase by 1.8pc and 2.5pc between 2012 and 2014.

The resultant stockpiling of product, along with economic instability in the US and EU, appears to be have hurt dairy markets in the past week.

A gap has appeared between EU and international whole milk powder (WMP) prices, according to IDB marketers.

WMP prices on Fonterra's weekly auction dropped again last week and they are now 16pc lower than the equivalent Dutch prices.

"I don't believe that dairy markets are going to crash, barring some major economic downturn," said IBEC's dairy analyst, Michael Barry.

"This is what happened in 2009 when milk price collapsed to intervention levels of 22c/l.

"But I would expect the current surplus of supply to ease prices down off their current high."

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