Thursday 29 September 2016

Short-term milk outlook is 'pessimistic'

Published 05/04/2016 | 02:30

Glanbia's chief executive Jim Bergin
Glanbia's chief executive Jim Bergin

The country's dairy co-ops will need to continue to to support milk prices or they may weaken further, with the short-term outlook remaining pessimistic, an analyst has warned.

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Low farmgate prices throughout Europe mean production growth will slow as farmers focus more on cost-savings than expansion, according to the latest research report from Rabobank.

However, Rabobank's dairy strategist Kevin Bellamy warns that while growth will level off, production levels will not fall so the world market will have to find a new pricing balance.

"The short-term outlook is not great," he said.

"Returns from commodity markets where much of the Irish production heads is still only around 26c/l meaning that, either cooperative boards will need to continue to dip into reserves to support prices, or there is room for further weakening of prices at the farm-gate," said Mr Bellamy.

However, he said they believe that co-op support will be "less possible" during 2016.

Rabobank signals that throughout 2016 the slowing production growth will be matched by slow but steady consumption growth in most export regions.

It pinpoints that this will reduce the surpluses available for export onto the global market and, when matched with renewed import demand from China and South-East Asia, will lead to upward pressure on prices in 2017.

Glanbia Ingredients Ireland CEO Jim Bergin, who was meeting farmers this week, said he believes the milk price in 2016 will remain in the "low 20s".

However, the long-term prospects remained good.

"The people who will be most challenged are those who have made big increases," he said.

"Those who've moved from 70 to 200 cows are very challenged now.

"It is a pity that in year two they are being hit," he said, adding the Glanbia co-op has also committed a €23m support package which works out at 1c/l for the year and the MilkFlex loan fund.

He said that he could foresee those that have borrowed heavily in the last few years having to restructure their finances.

Amid some criticism internationally over the level of growth in countries, including Ireland and Holland, Mr Bergin pinpointed the larger volume of milk coming out of Holland and the sharp rise in UK production.

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