Co-ops Must Plan Realistic Price Increase as Market Improves
IFA National Dairy Chairman Sean O’Leary today called on all co-ops, whose boards will meet in the next two weeks to decide on the July milk price, to take stock of improving market returns and acknowledge the worsening severity of the cash flow situation for a fast rising number of their dairy farmer members.
He said this should lead co-op boards who held the June milk price to build on positive market developments and plan for realistic milk price increases to return market improvements in coming months.
“We have acknowledged over the last number of months that co-ops have supported milk prices somewhat above market returns. However, in the last 10 weeks alone, we calculate that EU average returns for the main commodities relevant to the Irish product mix have improved by 4c/l. With a slowing EU milk output, falling in some of the most important member states, underpinned by increased cow slaughters and negative profitability on most farms, we believe this trend will continue over the coming months, and into 2017,” Mr O’Leary said.
“Overall, EU output is still growing but at a significantly slower pace. Milk supplies in France were down in May by 1.7%, with week ending July 17th 1% down; output in Germany for the week ending 10th July was 2.2% back, and in the UK May supplies were down 4.8% for May, with steeper reductions of around 9% recorded for June, and 10.2% for the first half of July. EU-wide cow culls for the January to April period were up 5.8%, 12.5% up in April alone,” he said.
“Globally, milk supply growth is slowing noticeably, from 2.8% for the Jan-May period to 2.1% for the Jan-Jun period. While New Zealand is back 1.4% in June and Australia down 4.3% for the Jan-June period, South American output is back massively for the period (-13.5% in Argentina, -13.9% in Uruguay). US output is up 1.6%, but this continues to stay within domestic demand growth,” he said.
“With supplies now tightening very visibly, and the trend appearing entrenched, buyers have started worrying about availability into 2017, and prices have moved up. EU commodity prices in particular have increased, as shown in the table below, with butter up nearly 20%, SMP 5.5%, WMP 15.5%, cheddar 6.3% and whey powder a whopping 28% in the last 10 weeks. As stated before these price increases represent around 4c/l more in the returns to the Irish product mix,” he said.
“It is now quite clear that the tide has turned on dairy markets and that we are looking at a recovery. It may be slow and it may take some time to translate into sufficiently improved milk prices to address the current dire cash shortages on farms, but it must be reflected by co-ops in their pricing plans in coming months. Farmers need the extra few cents to pay bills, and to rebuild their badly shaken confidence,” Sean O’Leary concluded.
