Farm Ireland

Tuesday 24 October 2017

Is the dairy market turning sour again?

Ciaran Moran

Ciaran Moran

News from the international dairy market has turned sour all of a sudden and comes at just the wrong time for Irish dairy farmers still reeling from a tough year for milk prices in 2016.

Sentiment at the Global Dairy Trade has begun to turn following positive auctions throughout most of late 2016.

Dairy prices fell last week with WMP and SMP led prices lower, dipping 3.7pc and 3.8pc, respectively. Overall, auction prices fell 3.2pc.

According to Nathan Penny, Rural Economist with New Zealand bank ASB looking at 2017 to date, WMP prices have now slid 10pc, while overall prices have drifted 5pc lower.

However, he does note that prices compare much more favourably to their levels a year ago; WMP and overall prices sit 72.5pc and 59.9pc above February 2016 levels.

"The dairy price decline follows a much - improved New Zealand production outlook.

"For example, we have lifted our nationwide production (i.e. for all dairy companies) forecast to a 3pc decline compared to last season, from a 5pc decline previously. Fonterra has made a forecast change of similar magnitude for its milk collections.

Moreover, Penny said this season’s weather risks in New Zealand have largely receeded.

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"With recent rain in most parts of the country and autumn around the corner, the improvements in production are likely to be maintained over the remainder of the season," he said.

As a result, he warned prices may soften further over coming auctions.


Meanwhile, nearer to home, the European Commission is understood to have again rejected all tenders for its latest offer Skimmed Milk Powder in intervention.

According to market sources, the Commission deemed the highest bid of €1803.90/t to be below market price.

It is understood tenders were only received from France and Poland and the tenders were for small quantities (1,400t). This constitutes the fourth consecutive tendering process where the Commission rejected all bids for the stock.

And the Commission is expected to stick to its guns in the short term at least and not sell to offers it says are below market price.

However, it has indicated that Private Storage Aid will not be available in 2017 for butter. ICOS has said this is disappointing as it believes the measure is a useful tool to assist countries with seasonality concerns.

Despite all this Irish milk processors increased their milk prices for January supples, however, most issued a health warning to suppliers that the dairy market is far from fully recovered.

All eyes will now turn to the next update on EU milk production with most keen to gain some insight into how EU measures to reduce supplies will have impact on the ground through the spring.

Online Editors