Milk price set for a slide, warn industry insiders

Glanbia Ireland has a 2.4 billion litre milk pool from 4,800 suppliers
Glanbia Ireland has a 2.4 billion litre milk pool from 4,800 suppliers
Gerald Quain, ICMSA
Louise Hogan

Louise Hogan

There is mounting unease in the dairy sector that milk prices could tumble next spring.

While nobody wants to be the purveyor of doom, there is a consensus building that the market has turned, and even the farm organisations accept privately that the outlook is not positive.

The general comment among industry insiders is that spring milk volumes will determine the extent of the reduction.

Global supplies have increased significantly this year, driven by sharp growth in US production.

US cow numbers are up 70,000hd on last year to 9.4m head, and total output for October was up 3pc on September supplies, and was 1.5pc ahead of October 2016 output.

The European market for butter is also on the slide, back almost 40pc since September, although the volumes traded are reported to be relatively small.

Dutch spot market values for butter hit almost €7,000/t in September, but had fallen to €4,340/t last week.

Buoyant demand for butter underpinned European milk prices this year, and the sharp drop in prices over the last three months is a major cause for concern.

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"The continuing overhang of 370,000 tonnes of skim milk powder (SMP) in intervention stores, and the changed regime for 2018 intervention purchases, will limit the Commission's ability to support prices," one source said.

However, the IFA's Sean O'Leary claimed that Irish dairy processors had a €190m nest egg from dairy returns this year and that should be used to hold milk prices through the early part of 2018.

"Even allowing for some supporting of milk prices in early 2016, co-ops should be in a comfortable position to hold prices at least until spring, and should even examine their overall 2017 financial situation to consider the payment of end-of-year bonuses," Mr O'Leary said.

"Between July 2016 and October 2017, the average gap between the price paid by co-ops and the returns from the EU market was around 2c/l, varying between 0.2c/l in October 2017 and over 4c/l in September and October 2016.

"We estimate this retained value would have been worth over €190m to co-ops, bearing in mind the volume growth over the period," Mr O'Leary said.

Meanwhile, ICMSA dairy chairman Gerald Quain said there were positive developments in global dairy markets this year, including the increased activity of Chinese buyers.

Mr Quain pointed out that Chinese imports of SMP were up 32pc in 2017, while cheese imports rose by 20pc, butter by 15pc and whole milk powder by 15pc.

However, he said it was crucial that processors held milk prices at current levels into 2018.

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