Farm Ireland

Tuesday 11 December 2018

Ornua returns slide to 31c/L in February

The Ornua index was expected to slip.
The Ornua index was expected to slip.
Ciaran Moran

Ciaran Moran

The Ornua PPI index fell again in February to 105.0 (31.3 cpl, VAT inclusive, based on Ornua’s product purchase mix and assumed costs of 6.5ppl) from 111.3 in January.

The company says it reflects lower returns for butter, SMP and spot product.

It comes as Global Dairy Trade prices slipped for the second time in a row at a fortnightly auction held earlier this week as an influx of supply from New Zealand curbed buying.

The Global Dairy Trade Price index fell 0.6pc, with an average selling price of $3,593 per tonne, said auction platform GDT Events.

The index had edged down 0.5pc at the previous sale, snapping three consecutive auctions of gains.

Whole milk powder (WMP), the most widely traded item, fell 0.8pc after New Zealand dairy giant Fonterra increased the amount of powder on offer, though that was still a better result than the 2.5pc drop expected by derivatives markets. 

"Fonterra had increased its WMP offer volumes ahead of this event as milk flows start to improve, so buyers are unlikely to feel as much urgency to secure product," said Amy Castleton, dairy analyst at AgriHQ.

New Zealand, the world's largest dairy exporter, had suffered from curbed supply caused by unusually dry weather late last year, which had pushed up prices. Wetter weather in recent weeks led to a more favorable outlook for supply, which meant further price gains were likely to be muted.

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"From here, we expect prices to ease further through to the end of the season. We expect NZ production to improve on the back of the increased rainfall. In turn, this improved production should put modest downward pressure on prices," said Nathan Penny, ASB economist.

'Keep a ‘3’ in front of the base milk price for all of 2018'

IFA National Dairy Chairman Tom Phelan said co-op boards will meet in the coming days to decide on February milk prices and consider the year ahead.

He urged them, as farmers count the cost of the snowstorm and a very long, challenging winter, to first hold the February milk price, and then develop a strategy which will keep a ‘3’ in front of the base milk price for all of 2018.

 “Long term, expansion cannot be expected to be its own reward, co-ops must optimise market returns and prices,” he said.

“The last 12 months have been generally wetter than average, cows were brought in early last year, and an already late turn out this spring will have been further delayed by the snowstorm and ice in most parts of the country.

Fodder reserves, already challenged in many areas, are diminishing rapidly,” Mr Phelan said.

“Interrupted milk collections, frozen water pipes increasing milking times, frozen diesel in tractor tanks, collapsed sheds, difficulties keeping animals fed and watered and newly born calves warm – these are only some of the challenges dairy farmers have faced through the blizzard conditions of snow storm Emma last week. 

Now, they have to count the cost, and make all the repairs required, with calving still at peak,” he said.

“Farmers appreciated hugely the massive efforts made by co-ops, their staff, hauliers, local authorities and also fellow-farmers in ensuring as much of the milk as possible was collected despite the horrendous conditions.

"However, farmers will need every bit of their February milk cheque to cover the cost of the last week alone. Co-ops must hold the February milk price,” he said.

“For the longer term, co-ops must understand that, from a farmers’ perspective, industry planning can no longer be purely supply-driven, with expansion expected to be its own reward.

"It must be about identifying and servicing market needs for sustainably produced high quality dairy products, and optimising the returns for Irish farmers. 

“I believe that holding the February price and setting out to pay a base price over 30c/l, not on average, but throughout 2018 would create the right conditions for farmers to deliver to their full potential for the Irish economy, and with the right supports, to do more for climate mitigation,” Tom Phelan concluded.

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