Farm Ireland

Wednesday 17 January 2018

Dairy worries despite positive sentiment

Declan O'Brien

Declan O'Brien

It is a sign of the times that each ripple in world dairy markets spurs fears that we might again be on the cusp of a 2009-style price collapse.

Dairy farmers are nervous. They are now operating in a global market and are at the mercy of the peaks and troughs that unfortunately characterise commodity trading.

There has been talk from some of the potential for buyer "burn-off" if prices continued to increase.

Last week brought news of a 5.8pc drop in US butter prices and a 1.5pc fall in skim milk powder (SMP).

However, there was also good news from a couple of quarters. Peter Duggan, of Bord Bia's Strategic Information Service, points out that despite the slight easing of dairy prices, most products are performing at levels 20-30pc higher when compared with last year.

Dutch SMP is 20pc higher to date at €2,312/t, while the equivalent New Zealand product is 25pc stronger.

While output has certainly increased this year -- New Zealand production is up 4pc, while it is up 16pc in Argentina -- demand has also kept pace.

The global economic recovery is expected to help dairy demand in key emerging markets over the next few years.

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Mr Duggan cites the most recent IMF Economic Outlook which suggests that the global economy will grow on average by 4pc annually over the next two years.

The emerging and developing economies are expected to show annual growth of around 7pc, while advanced economies will grow by almost 3pc.

The troubled Irish economy is unlikely to add too much to these growth projections but this analysis is a welcome one from the dairy sector's perspective.

There were also some positive soundings in the May edition of the ICOS Dairy Digest. Quoting the Food and Agriculture Organisation (FAO), the digest noted that global markets remained relatively strong and that prices were stable.

Looking to the future, the FAO forecasts a slight drop in prices but it tempers this with the caveat that much will depend on the performance of the Chinese economy.

China bought nearly 40pc of all the whole milk powder shipped from New Zealand in the first quarter of this year and purchases have increased by 84pc compared with the same period last year.

Although the Chinese economy is set to grow by 10pc again this year, the IMF has warned of an "abrupt slowdown" in the future.

We can only hope that the wheels stay on that particular wagon for a while longer.

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