Farm Ireland
Independent.ie

Sunday 20 August 2017

Milk price slump set to continue for six months

Prices now 24pc down on last year and analysts predict further falls

Farmers face a massive fall in income if milk prices drop
Farmers face a massive fall in income if milk prices drop
Darragh McCullough

Darragh McCullough

The downward spiral of milk prices has accelerated in the last week, and a key dairy analyst has warned there is little sign of improvement in the next six months.

The Global Dairy Trade (GDT) auction took a massive 11pc tumble, followed by cuts of up to 1.5c/l by Irish processors for key June milk deliveries.

The average price of 28c/l is over 24pc lower than the June 2014 price, but is still considerably less than the falls being experienced on international markets.

There appears to be little prospect of price improvement on the horizon in the next six months.

"We just have to wait for something to happen to change sentiment - until it happens, nobody knows what that is going to be," said Teagasc's head of dairy research, Padraig French.

"But we still don't know when prices are going to pick up again, so you could be looking at a similar price for all of next year," he admitted.

Dairy industry analyst, Barry Wilson was even more pessimistic.

"I don't see any light at the end of the tunnel. The Chinese economy is still tanking, the Russians are happier than ever [with the ongoing ban on EU food imports], and there's no way that the EU is going to increase intervention prices," he said, with the current intervention price at 21c/l.


He believes that the end of the quota regime couldn't have come at a worse time as world output continues to increase, with the US in particular buffered by cheap grain supplies and a protected domestic market.

Glanbia Plc and Aurivo now paying the lowest prices for June milk, at 26c/l, although suppliers are being topped up by 2 to 3c/l from each co-op's rainy-day reserves.

Dairygold announced a 1c/l cut to 27c/l, with Kerry, Lakelands and Arrabawn all around 28c/l. Carbery has helped maintain confidence in the southwest by guaranteeing a milk price until the end of August of 28.7c/l.

The most recent drop in the GDT left skim-milk and whole-milk powders selling for as little as 16-19c/l.It brought the index to its lowest level since it began 10 years ago, and represents a 41pc fall in prices since July 2014.

Fonterra are expected revise down their new season guide to NZ$4/kg in the coming weeks, giving Kiwi dairy farmers close to 20c/l.

European prices have been holding up better, with Arla's price still at the equivalent of 28.5c/l, and most British dairy farmers receiving a similar price.

Supplies

Bill Moore, an Irish sharemilker working in New Zealand, believes that most farmers there will maintain output at similar levels to 2014 , even if they are operating at below the cost of production. "Most guys here have re-financed overdrafts into long-term loans to get through this period," said the Meath man.

However, Mr French argued that changes in supplies would materialise in the coming months.

"US increases have fallen back to 1.5pc. There will also be a fall off in production in New Zealand this year with increased culling of dairy cows, zero new start-ups, and less bought in feed used," he said.

However, Rabobank's Kevin Bellamy believes that there will be no drop in global milk output until Christmas at least.

The analyst also questioned the logic of subsidised Irish milk prices.

"Your co-ops have kept prices up for the best of reasons, but in doing so, they incentivise farmers to produce more milk, which just prolongs the problem," said Mr Bellamy.

Mr French advised farmers to sit down and do their sums.

"You've got to do a cash flow for the next 12 months, because the danger time will be next spring. Right now, increased constituents and volumes are masking the price drop, but the sooner you know what you'll have to spare over the coming months, the more options you'll have in terms of making changes," he said.

"Investment in up-grading facilities or machinery should be cut first, along with an examination of surplus stock numbers. Whatever you do, maintain P's (phosphorous) and K's (potassium), otherwise you're compromising your profitability for the years to come," he said.

Indo Farming