Farm Ireland
Independent.ie

Monday 23 October 2017

Catherine Lascurettes: Good year for dairy farmers looks set to roll on into 2014

Catherine Lascurettes

The year has proven to be a good one for the dairy sector, thanks to tight milk supplies and robust demand. Global milk production had been constrained since 2012, first by cost hikes and falling milk prices and then, more recently, by unfavourable weather factors. New Zealand supplies, which had rocketed up 10pc in 2012, fell back dramatically this year, down by 7pc in June alone and by 1.3pc for the entire season.

Despite rising milk prices, falling feed costs and improved weather conditions, milk supplies are only just starting to recover now. The northern European cold spring caused fodder crises for more than just Ireland and the hot summer that followed continued to limit output except in a few regions.

For much of 2013, demand growth outpaced supplies, and this has meant increased international trade at historically strong prices. The EU was able to export large quantities of powders, while strong internal butter and (ice) cream demand reduced recourse to Aids for Private Storage (APS) to only two-thirds of what it was last year.

FONTERRA SCARE

The Fonterra botulism scare in August caused a major customer confidence crisis, mostly due to poor handling of the episode. The crisis has boosted EU and US dairy sales as buyers in China, Southeast Asia and Russia have shunned New Zealand product since.

Demand has remained robust through the year. Dairy prices first peaked in April and then fell back in anticipation of stronger supplies. However, prices started to shoot up again through the summer as it became clear to international buyers that milk would remain scarce and dairy products would become even dearer.

International and EU dairy markets peaked in April. After some settling, these started to climb yet again in early summer. The knock-on increases for farm-gate prices has made it very attractive for many farmers to milk on this autumn and produce in 2013/14 relative to the previous 12 month period.

FUTURE SUPPLIES

Also Read


Improved margins will lift supplies in all regions. While the United States Department of Agriculture (USDA) forecasts only a 0.7pc production increase for 2013, it has predicted a 2.1pc uplift for 2014.

In Europe, Ireland, Denmark, Germany and the Netherlands are all reporting strong production growth at this point.

New Zealand appears set for a good early season, with a 3pc increase in the June-August supplies, and Fonterra forecasts a 4-5pc price increase for the full season, with a historically high payout of NZ$7.82/kg for milk solids. Confidence in New Zealand product may have been shaken by the botulism scare, but they will become sought after again.

Having said all that, low stock levels will be the story of the markets for the medium term. This shortage of supplies coincides with the Northern Hemisphere's low production season, so it is reasonable to assume that prices will remain fairly steady for the back end.

WHAT OF 2014?

In the absence of significant weather events, there will likely be strong growth in most dairy regions, as farmers respond to higher margins.

Rabobank has just predicted a 2-3pc increase in supplies for the main dairy regions in the first half, with demand continuing to rise at 2.4pc annually. Its analysts have also signalled a deflation rather than major price reductions in the first half of 2014, and still predict a price in the mid-30c/l range.

It is simply too early to tell, however, just how supply, demand and weather will interact.

BACKEND MILK PRICES

The IDB index reached 133.5 points in August, reflecting extremely strong returns for powders, butter and cheese. Using the 2010 base of the index, it is not unreasonable to suggest this is equivalent to a gross return of around 45c/l.

Current EU average market prices for the main commodities have returned more than 40c/l for several months, and firmed to 45-47c/l in recent weeks.

Not all co-ops receive these return levels currently, as contracts signed some months ago may return less, and product mixes differ.

Still, farmer milk prices in the very high 30s to low 40s (including VAT) are justified in the current market climate. With our seasonal milk supply, and the market outlook, they are also sustainable at least till the spring of 2014.

QUOTA LOOMING

Remember, no matter what happens to markets and prices, the superlevy rules will apply right to the end. Despite strong lobbying by IFA, it is clear that a softening of the regime is not on the cards pre-2015. Indeed, the debate in Europe currently centres on whether there should be some continued supply restrictions after that date.

Meanwhile, superlevy remains a real risk this year and possibly next.

The latest Department of Agriculture figures show that Ireland was just 0.36pc under quota at the end of August, compared with 1.44pc at the end of July.

Farmers will need to decide whether to sell or buy quota for 2014/15, and at what price, by the deadline of the very last Milk Quota Trading Scheme. The first phase of this closes for applications by October 11.

Catherine Lascurettes is executive secretary of the IFA national dairy and liquid milk committees

Irish Independent



Top Stories