US farms will set the market price for milk
World market prices for milk will be set by feedlot producers in the US and not by the Fonterra's Global Dairy Trade auction, the Positive Farmers Conference in Limerick was told.
Fonterra director Jim van der Poel explained that the continued growth in demand for dairy products would almost double global trade to the equivalent of 84 billion litres by 2020. This is 35 billion litres above the current level of 49 billion litres.
Mr van der Poel, who has dairy operations in New Zealand and North America, said the only country with the supply capacity to meet this extra demand was the US.
However, he said large American feedlot dairy units in the US would increase production only if it were profitable to do so.
"Their cost of production will therefore become the benchmark for international milk prices," Mr van der Poel said.
He said US milk production tracked the commodity price for whole milk powder (WMP). At €1,900/t for WMP milk producers are exiting the business; at €2,700/t things are on an even keel; while at €3,500/t buyers are pulling back.
Mr van der Poel said that Irish plans to increase milk production by 2.5 billion litres by 2020 would have no impact on world markets.