Farm Ireland

Tuesday 25 September 2018

'Pessimistic' outlook on milk prices until July

Forecasters predict a below-cost price of 27c/l for Irish dairy farmers in 2015
Forecasters predict a below-cost price of 27c/l for Irish dairy farmers in 2015
Darragh McCullough

Darragh McCullough

Milk price forecasts are not likely to improve significantly for the first half of 2014 despite EU exporters receiving a double boost this week.

A 10pc devaluation in the euro as a result of the EU embarking on a €60bn per month economic stimulus is set to help dairy exporters move product, and a change in government in Greece is expected to maintain pressure on the currency.

Meanwhile, New Zealand output has been hit by drought conditions in the southern half of the country.

However, forecasters still predict a below-cost price of 27c/l for Irish dairy farmers in 2015.

"We're still pessimistic about any improvement in milk prices in Europe before July," said Rabobank's senior milk analyst, Kevin Bellamy.

He believes that the continuing absence of Chinese buyers, coupled with the ongoing ban on EU dairy products in Russia will hamper prices in the short-term.

"The real impact of the Russian ban is only going to be felt by European dairy processors this spring when the peak cheese-making season kicks off," said Mr Bellamy, pointing to European dairy processors' traditional reliance on Russia for 30pc of their export cheese sales.

"However, there appear to be some high level discussions with Russian authorities, which may ease some of the restrictions earlier than we were otherwise expecting," he added.

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Even though milk output is expected to shrink in Europe in the first half of 2015, and New Zealand production is only expected to be 2.5pc higher this year, the Rabobank analyst believes the global supply situation continues to outstrip demand.

Fonterra's Global Dairy Trade auction recorded its third consecutive increase in overall price levels recently, representing a 10pc increase since its lowest point in six years in December.

However, ICOS dairy analyst, TJ Flanagan, said that while the potential turn-around in price was welcome, even if it remained at a very weak level.

"The equivalent milk price is still 20-22c/l, so we're still on the floor. And the volumes going through the auction are also back, so there may be some level of supply management going on," said Mr Flanagan.

"I don't think that the New Zealand drought is going to affect prices the same way that it did two years ago because it's more localised and they have better fodder supplies this time around.

"And we still don't know what's happening in China, and that market was responsible for buying up to 500,000t of powder in recent years so that's a big gap," Mr Flanagan added.

The ICMSA's deputy president, Pat McCormack, said that he was encouraged by the fact that butter had increased in six of the last seven Global Dairy Trade auctions to the point that it was now up over 40pc since the start of last October.

"Cheddar has also seen a 9pc gain since November 2014. Dutch quotations have also shown increases in the last few weeks, with increases across the board, especially in butter, which is up 5pc since the lowest point", said Mr McCormack.


Meanwhile, Teagasc unveiled a blueprint for dairy farmers looking to enter share-farming arrangements with other farmers this week.

The template was developed by Teagasc's Tom Curran in consultation with a steering committee and the Irish Farm Managers Association. It provides a sound legal basis for any new partnership, and will be available on from April 1, when these arrangements will be officially possible.

"The template agreement ensures that the land, facilities and production rights are detailed in the arrangement. The split in farm receipts and input costs is documented, as well as the ownership of animals. Procedures for dealing with conflict and dissolution are also outlined," said Mr Curran.

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