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Milk price 'not certain to rise'

A milk price of 25-26c/l is being forecast by the Irish Dairy Board (IDB) for this year.

In a pessimistic assessment of the dairy markets for the year ahead, which was delivered to board members recently, the marketing body claimed that a sustained price recovery was not guaranteed.

An IDB source told the Farming Independent that what underpinned the board's view were the fears that a sharp fall in grain prices and improved milk returns would prompt a jump in US production.

The fact that dairy buyers have not been as active this month as they were over the final quarter of last year was seen as another reason to worry.

However, this negative view is not shared by some industry sources. One leading figure in the processing sector said that buyers always "sit on their hands" at the start of the year.

With New Zealand also experiencing a very dry summer, he said overall production could be well back in the medium-term if drought conditions take hold.

"I can't see consumption of dairy produce increasing significantly, so price will be driven by production rather than demand," he said.

However, Michael Barry, director of the Irish Dairy Industries Association (IDIA), insisted that a supply shortage -- which could cause prices to peak again -- would be very damaging for the sector.

"This would cause secondary processors to move away from dairy ingredients," Mr Barry warned.

"Most analysts are saying there will be a modest recovery in global demand, and they are consistently predicting a milk price of 25-27c/l for 2010."

Mr Barry said there were signals of an adjustment in consumer sentiment, with many starting to move back to more traditional buying.

"From an Irish point of view, this could mean a recovery in the basic cheeses, but it could also affect the value-added products," he warned.

The IDIA director added that a sustainable dairy market recovery would give confidence to the financial sector.

"They are the ones who are really holding the purse strings at the moment," Mr Barry said.

On the EU market, overall prices have stopped rising -- cheese is the only exception -- according to the R&H Hall commodity trading report for this month.

With production rising out of the seasonal November trough, butter and cream prices, in particular, have fallen. Forward butter prices indicate that returns could be up to 10pc lower in this year's first quarter.

European skim milk powder is competitive on the world markets, unlike butter, and prices are said to be stable.

The report described the world dairy market recovery as fragile and maintained that each further increase in commodity pricing from this point forward could increase the prospect of another weak market later on.

"The view is emerging from some quarters, bizarre as it looks, that exporters and suppliers could be better served if the market started to stabilise. There is a fear that in this fragile environment, each further increase in commodity pricing from this point forward may only increase the prospect of another weak market developing, which will be in nobody's favour," the report stated.

Irish Independent