'Flat' outlook for milk prices as political factors take a toll

ICMSA's Gerald Quain
Declan O'Brien

Declan O'Brien

Political instability is having a profound affect on dairy markets, the ICMSA has warned.

The latest GDT drop had to be viewed through the lens of greater uncertainty in the Gulf, Brexit and the worsening trade dispute between the US and China, said ICMSA dairy chair Gerald Quain.

The latest GDT saw the overall index fall 3.8pc, with butter back 5.7pc, cheddar 4.3pc weaker, SMP down 3.5pc and WMP back 4.3pc.

"The best explanation is that there's a feeling of general uncertainty, whether that's Brexit, the current US-Iran standoff with its implications for oil supply, or the decision by the ECB to signal a drop in interest rates," Mr Quain said.

There may also be a question of markets overreacting to the continuing trade issues between the US and China, and to a perceived change in western consumer tastes for dairy, he added.

"We're not looking at an oversupply and there's no reason buyers would look forward and anticipate a supply that would warrant the drop in the GDT that we saw recently," Mr Quain maintained.

However, Ornua's Colin Kelly cautioned that demand will have to strengthen over the coming months as global output increases.

Mr Kelly described the outlook for the dairy trade as "flat", and warned that demand would have to improve in the second half of the year as milk supplies increase in New Zealand and Europe.

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Mr Kelly said demand in developed markets remained "sluggish and subdued", and he forecast that this would not be balanced by stronger buying in Asia.

While milk production has been static in the US and is likely to be hit by recent floods in the Midwest and a heatwave in the west, the Ornua official pointed out that supplies in Europe and New Zealand are expected to grow on the back of favourable weather and fodder conditions. Reduced demand for feed whey as a result of the recent pig cull in China, and a 5pc drop in the value of sterling over the last month, were cited as further potential drags on the market.

Commodity prices

However, Mr Kelly said the increase in US soya and grain prices was a positive development as it could curtail the potential for growth in North American milk output.

Dairygold said the reduced demand for butter was a critical factor in the recent slide in dairy commodity prices.

While the market for proteins such as skim milk powder (SMP) has stabilised, this has not been enough to offset the drop in fat prices.

Meanwhile, the EU Commission has confirmed that the last of 380,000 tonnes of SMP held in public stores has been sold. The SMP stocks were bought by the Commission in 2016 and 2017 when milk prices collapsed.

Global index falls by almost 4pc even though output yet to reach its annual peak

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