Dairy outlook is still positive despite processors' latest milk price bombshell

The spring of 2018 will linger long in the memory as one of the tough ones on farmers, especially dairy farmers. Most farmers are now seeing the back wall of their silage pits, something they haven't seen since the spring of 2013.

The excellent grass growth levels of 2017 have well and truly been utilised this winter and spring. As the old saying goes 'silage in the pit is as good as money in the bank' has proven to be very wise again, as it does at least twice in every decade.

The extended stay of 'The Beast from the East' has taken many dairy farmers to the limit. Most are prepared to burn the midnight oil in spring with modern compact calving patterns but, what this spring has demonstrated is when you add another factor such as bad weather into the mix it has the potential for a catastrophe.

Finally, to top it all off the milk processors drop prices by up to 3c/l - a milk price bombshell. What timing!

Just days after tanker drivers had done trojan work collecting milk in the snow from dairy farmers who braved the elements to ensure the cows were milked, the processors go and land a sucker punch.

We had announcement after announcement, almost as if co-ordinated, drip fed into the public domain. What makes the large sudden drop more surprising is that some processors had even offered to pay for milk they failed to collect in the snow just days earlier. So, what does a 3cent per litre fall in the milk price mean to dairy farmers?

The average farmer in Ireland this year will milk 100 dairy cows, the 3c/l fall will reduce income on this family farm by €17,250 (see table 1). Imagine if the salaries of all civil servants and politicians were slashed by this sum there would be public mutiny. In fact, some of the processors managed to increase remuneration to board members and management just before the price reductions.

It all smacks of a distinct lack of care and respect for their dairy farmer milk suppliers. We all know that international markets, particularly milk powders are presently taking a hit on price, but surely the price fall could have been spread out over the coming months, if only as an act of solidarity between milk processors and milk suppliers.

This new era post-EU milk quotas will shake up the cosy arrangements of the past between processors whereby suppliers were effectively not permitted to move.

The blanket signing of milk supply contracts may not be as smooth for processors next time around if farmers perceive that their milk processor does not have their back in times of crisis, trust is everything in a relationship. Perhaps in future, suppliers should consider supplying more than one processor to ensure there is some competition for their milk.

Processors' prime focus should be on maximising the milk price paid back to their dairy farmer suppliers in preference to promoting complicated milk price and loyalty bonus schemes which are really aimed at locking the supplier in to that particular processor.

On a positive note, as spring finally arrives it is not all doom and gloom as the current milk price is still relatively healthy.

The CSO publishes monthly milk prices paid to farmers for manufacturing milk, the price includes VAT and is the actual price paid to farmers for the supplied fat and protein (see table 2).

Even deducting 3c/l from the 2017 milk price an average of approximately 34.9 cent per litre paid to farmers is still possible for 2018. This is slightly below the five year average (35.45 c/l) and above the 10-year average (33.76 c/l).

Of course, this assumes the price holds at the present level. If the price holds in and around the current price dairy farmers are in for another profitable year in 2018. When dairy farmers get a good price for milk and generate good profits they spend on their farms and in the local economy. Many are expanding their dairy herds and have ambitions to expand even further.

Everybody benefits in this situation, the dairy farmer, his family, associated agri-businesses, the local economy, government via taxation, however, the biggest beneficiary is the milk processor. Beware not to cut off the hand that feeds you.

Mike Brady is managing director at Brady Group: Agricultural Consultants & Land Agents, email: mike@bradygroup.ie.