Farm Ireland

Sunday 25 March 2018

What does 2017 hold for dairy farmers?

Margaret Donnelly

Margaret Donnelly

It took months of low prices before milk production slowed down. Now farmers are facing into 2017 with prices beginning to pick up. Will production follow?

Despite the steep fall in prices that had taken place by the end of 2015, the growth in global milk production took some time to slow down.

New Zealand saw milk production grow by 40pc over the last seven years and it was the first major exporter to slow its milk production growth during the recent price collapse.

Figures from the Teagasc review and outlook show that monthly New Zealand milk production has been falling since August 2015.

In Europe, milk production has grown by 10pc over the last seven years, reflecting the gradual relaxation of the milk quota system and its eventual elimination.

The overall EU production story masks quite a degree of variability at the MS level. In the Netherlands and Ireland in particular production has continued to grow strongly, up by 10.6pc and 7.6pc respectively in January to August 2016 on the same period in 2015, the Teagasc figures show.

In Ireland production growth is at least partly being driven by the large increase in dairy cow numbers, in spite of the low milk price level. Germany, Poland and the Czech Republic have also exhibited large absolute increases in milk production in 2016.

The most significant fall in milk production at the member state level has been in the UK, where production in the period January to August 2016 was down over 0.3m tonnes on the same period in the previous year. Total EU milk production in 2016 is likely to be up by 1pc.

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Global milk production may increase to 830 million tonnes (mt) in 2016, compared with 818 mt in 2015. This annual rate of increase of 1.5 percent is below the trend of the last fifteen years, which was 2.3 percent per annum, the Teagasc figures state.

In 2015 milk quota elimination gave rise to a 13 percent increase in milk production in Ireland. In spite of the lower prices recorded in 2016, the dairy cow herd continued to grow strongly. The need to generate cash in the presence of low milk prices also motivated continued growth in milk production.

The annual average national milk price (CSO definition) is estimated to be close to 27c/L(vat inclusive) in 2016.

Market prospects for 2017 look positive at the global level, but Teagasc warns that one area of concern, particularly in the EU, is the large SMP public and private stock level that has developed over the last 12 months.

The improvement in milk prices is likely to coincide with the 2017 Irish milk production season, which should allow dairy farmers derive a significant benefit from the strengthening milk prices.

EU milk production is likely to continue to increase in 2017, but by a small amount - possibly as little as 0.5pc, while the latest forecasts suggest a 2 percent increase in US milk production and production in New Zealand is likely to resume growth at some point in 2017.

On the demand side internal EU consumption should continue to increase, with stronger consumption growth for cheese and SMP than in the case of butter, where recent high prices are likely to constrain demand. The continuation of low crude oil prices may dampen dairy product import demand in countries where oil revenues represent a major share of GDP. Chinese dairy import demand may pick up further.

Taking these factors into consideration, it is likely that an improving dairy market situation will develop into the first half of 2017, Teagasc predicts.

Given the forecast 15-20pc increase in the annual average milk price in 2017, Teagasc says that gross and net margins are forecast to improve in 2017. Net margin per litre is forecast to increase by 53 to 73 percent in 2017, to an average of 11 to 12.4 cent per litre.

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