Farm Ireland

Sunday 22 April 2018

Milk prices may have bottomed out

Adamant: EU agriculture commissioner Phil Hogan
Adamant: EU agriculture commissioner Phil Hogan
Darragh McCullough

Darragh McCullough

The first signs that international milk prices could have bottomed out came this week, even as domestic prices continued to be cut.

A key New Zealand analyst signalled global dairy markets may move 30pc higher than forecast, but cautioned that prices within the EU may fall further.

Kerry cut its July price yesterday by 2c/l to 26c/l, while Glanbia Ingredients Ireland cut by 1c/l to 25c/l plus 1.5c/l for those signed up to the milk supply agreements.

It followed Lakeland Dairies' 1/cl cut to 27c/l, and leaves milk prices at levels below the cost of production, both domestically and internationally.

Three consecutive 10pc falls in the Global Dairy Trade auction dropped prices of milk powders to unprecedented lows, which analysts noted were lower than production costs, even in New Zealand.

However, ABS Bank's rural economist, Nathan Penny, believes that New Zealand milk prices for the coming season will be nearly 30pc higher than the 18c/l indicated by Fonterra bosses earlier this month.

Pointing to a 30pc premium over current auction prices for November deliveries, Mr Penny said this was a sign that markets believe that a drop in Kiwi output will lead to prices settling at closer to 23c/l for the coming season.

He claims that the price lift may not stop there, with Fonterra reducing the volumes of whole milk powder that it will offer at this week's auction. However, the analyst believes that the turnaround in price falls will take longer to materialise in Europe.

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"I'd expect the same to happen at a later point for European and Irish prices because EU prices are still higher than New Zealand prices. The two are likely to converge, meaning your prices may have further to fall," he said.

While accepting the ongoing negative impact of the Russian ban, Chinese economic weakness, and cheap US grain, Mr Penny said that a developing El Niño weather system would heighten the risk of drought.

He added that concerns over Chinese stock market falls and Greece had unduly shaken buyers' confidence, to the point where prices had fallen below the fundamental cost of production.

"The falling production outlook and changes to Fonterra's auction volumes have been the circuit-breaker to start bringing back some sanity to dairy market pricing, at least from an NZ perspective," he said.

Lakeland Dairies CEO, Michael Hanley, said that they expected the period of low milk prices to last for the next nine months, and demanded more intervention from the EU.

With the Agricultural Commissioner, Phil Hogan, adamant that intervention prices should not increase, ICOS has come up with suite of alternative actions to help the dairy sector.

It does not want Brussels officials to dip into the CAP's crisis fund, stating that this could result in a 2.7pc modulation of payments to all farmers.

Instead, it wants to replace the Russian and Chinese demand by opening up markets in Iran and Brazil with superlevy money. In addition, it wants beefed up intervention and market analysis, early payment of farm scheme monies, deferred tax bills, and more political effort to re-establish trade links with Russia.

The Deputy President of ICMSA, Pat McCormack, said policymakers should be profoundly ashamed that British farmers were reliant on what he described as a "charitable donation" from the multiples. "Why can't retail giants forget about asking customers whether they feel like paying the real price of the milk and just explain to them that the costs of producing milk have gone up and charge them a real price that can be passed back to the farmer so that he can make a living?" he asked.

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