Farm Ireland
Independent.ie

Tuesday 12 December 2017

Ghosts of '09 hang over the dairy sector

Declan O'Brien

Declan O'Brien

Fears of another 2009 haunt the dairy sector and more particularly dairy farmers.

They see parallels in the conditions that played out three years ago and those that are now emerging.

Atrocious weather, sick global markets and falling milk prices are cited like the three horsemen of the apocalypse.

However, while things will certainly be difficult for the summer, fears of a repeat of 2009 have been dismissed by many within the dairy sector.

They maintain that the market conditions in 2009 and 2012 are fundamentally different -- 2009 was a demand issue, 2012 is a supply one.

Whereas there was a total collapse in demand for dairy commodities in 2009, industry sources insist that demand has actually increased this year. However, that lift in demand was outstripped by greater dairy supplies.

Global milk supplies have expanded by 4pc over the last year but demand has increased by just 2pc.

The resultant 2pc overhang in supplies has allowed buyers to stand back from the market and wait for dairy commodity prices to fall.

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But industry sources are adamant that the market has now bottomed out and that prices are unlikely to fall further.

"Two weeks ago we were worried that we were heading for intervention for butter, but I think those fears are gone now," one processor said.

It is also expected that the price drop will lead to a supply correction and an upturn in dairy markets over the next six months.

Already there are indications that large numbers of cows in the US are being taken out as lower milk prices and higher grain prices hit margins.

Unfortunately for Irish dairy farmers, while the market may have bottomed out, it has done so at a level that will lead to serious cuts in milk prices this summer.

The talk is of processors trying to get prices back to 30c/l, and even to 28c/l. How this plays out over the summer will depend on how quickly markets recover.

But milk suppliers will certainly be sickened that prices are easing just as they head into the peak production months.

There's a conspiracy theory doing the rounds that higher than normal volumes of dairy commodities were traded through the Fonterra auction recently, in order to further depress global markets at a time when northern hemisphere countries were entering their production peak and the New Zealanders were easing down.

The theory goes that the markets will just be recovering as milk production ramps up again in New Zealand.

Like all such conspiracy theories, there's a distinct absence of hard fact to back it up.

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