Chinese SMP imports driving dairy markets
A surge in dairy exports to China will put a floor on Irish milk prices into the first quarter of 2020.
Some processors report that sales of skim milk powder (SMP) to the Far East are running more than 50pc ahead of last year.
China's SMP imports are up 30pc year-on-year, mainly driven by strong demand and displacement of US product on the back of the ongoing Sino-US trade war.
The lift in Chinese SMP imports has been reflected in stronger powder prices across Europe, with the Dutch spot price for SMP hitting €2,440/t last week - up from €1,800/t in January.
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European SMP exports to China have increased by over 60pc since early 2019, and EU output of SMP is up around 20,000t year-on-year, with Ireland accounting for the bulk of this growth.
The market for butter remains sluggish, although prices have improved to €3,400-3,500/t as a result of tighter supplies of dairy fats on the European market.
The improved outlook for global dairy sales was reflected in the Ornua PPI index which increased from 103.8 recorded in September to 105.6 for October. This equates to a farmgate milk price of 31.5c/l.
Ornua attributed the latest PPI lift to higher powder returns and stable butter demand, which offset lower cheddar returns.
Industry sources predict that the positive sentiment around dairy markets will at least underpin milk prices in the short-term, and could herald a post-Christmas bounce in farmer returns.
ICMSA's Ger Quain said the hike in the PPI meant that processors should be in a position to pay a minimum price of 31c/l for October supplies.
"We expect that every co-op will move directly to that price and I foresee a massive backlash in the event of anyone not getting up to that level," he said.
"Some of the co-ops have left themselves a nice jump to get up to that price, but, frankly, that's their own fault for systematically underpaying for the last couple of months.
"Some of our processors will have to realise that regardless of whether they're involved in multi-billion euro mergers or explaining away multi-billion share value falls, farmers have to be paid for the milk they're supplying every month."
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