Farm Ireland

Thursday 14 December 2017

Dairy farmers demand milk price rise as global prices could surge to 40c/L

Edward Hennessy from Paulstown, Co Kilkenny. Roger Jones
Edward Hennessy from Paulstown, Co Kilkenny. Roger Jones
Ciaran Moran

Ciaran Moran

The spike in dairy prices since July has got legs, according to Rural Economist, Nathan Penny of ASB bank in New Zealand commenting following yesterday’s positive Global Dairy Trade auction.

“Dairy supply has fundamentally corrected, leading to a similar correction in prices. And the auction overnight has seen the price surge further solidified.

“If anything, we see prices going higher,” he said.

In particular, he expects the global production picture to “get worse before it gets better”.

“Here in NZ, a very weak season production - wise is all but set in stone. Meanwhile, we still have a view that current data flatter the actual (downward) trend in EU production.” he said.

This global production tightness may squeeze prices higher yet, Penny said.

In line with expectations, dairy prices further cemented their large gains at this week’s Global Dairy Trade. Overall prices ticked up 3.5%, paced by a 4.9% lift in WMP prices.

Penny highlights that six out of the seven products he monitors rose.

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“Dairy prices have corrected higher and now sit above long - run averages .

“For example, WMP and overall prices are 62% and 51% higher than as at the same time a year ago. Meanwhile, WMP prices have moved 12% above the level price s have averaged since auctions began back in 2008,” he said.

Penny says the relative WMP strength reflects the market’s ongoing reaction to the rapid decline (from an already weak position) in NZ production.

Prices for WMP , NZ’s key product, have surged around a third over the last four auctions, while SMP prices, in contrast, have jumped a less spectacular 18%.

“In our view, WMP prices may have further to go, and may challenge US$4,000/MT in the New Year,” he said. Such a rise would be an equivalent milk value of 40c/L in Irish constiuents.

30c/L the “Absolute Minimum Acceptable” say farmers

Commenting on the 3.5 % increase in the latest Global Dairy Trade Auction, Gerald Quain, Chairperson of the ICMSA Dairy Committee, said that processors and Co-ops must keep up with the market momentum and show leadership in the setting of up-to-date milk prices. 

He said that based on market returns, the absolute minimum acceptable price for milk supplied in November was 30c/L.

“The expectation now within dairy farming is that the 30 cent per litre marker must be breached in the next round of price announcements.

“The 1 cent price rise last month was demonstrably short of the market realities and just did not reflect the obvious buoyancy in markets.

"This upward sentiment has been sustained over the month and, interestingly, Whole Milk Powder has now taken over Butter as the commodity in high demand.

"Dairy farmers are looking to 2017 with the expectation that prices will  cover all costs of production dairy including their own labour for the first time in nearly two years”,  noted the ICMSA Dairy Chairperson. 

Quain said that milk suppliers desperately needed money in the context of the unprecedented cash-flow pressure that all were subject to this Autumn after what he described as “a truly disastrous  year for dairy farmers”.

“ ICMSA is specifically setting 30 cents per litre as  the absolute minimum that board members should be demanding from their Co-op”,  Quain said.

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