There is some concern that butter prices are too high to be sustainable – the average over the same 3-year period was €3000/t – and need to be rebalanced by greater increases in SMP prices – which will hopefully continue to materialise as the summer progresses. Recent butter price increases have been more tentative, and more modest.
EU MMO reported returns, at a gross 38.06 c/l for the nominally representative Irish product mix, before deduction of processing costs, would now support price increases relative to what Irish co-ops are currently paying. Co-ops must recognise that not only have we seen the end of milk price cuts, we are now coming to a point where milk price increase are totally realistic. While this is a snapshot in time, and may not reflect the exact product mix of any one co-op, it nonetheless suggests that improved returns are becoming increasingly available for our co-ops, which should enable them to pay improved prices this summer.
The current (10th June 2018) EU MMO returns would support a milk price after deduction of a 5c/l nominal processing cost of 33.06c/l + VAT (34.84c/l including VAT).
European and New Zealand milk purchaser have already moved to increase prices
Friesland Campina have announced an increase in June milk prices of +€0.25/100kgs to €34.25/100kgs, while Arla Denmark announced a 1c/kg uplift. For UK Arla suppliers, this translates into an increase of 1.15ppl. (Get actual prices for both here). Any July price increase announcement by those?
First Milk (UK) have announced a 1.2ppl price lift for July to 28.58ppl (32.85c/l) .
Fonterra have revised the 17/18 pay-out (price + dividend) to NZ$6.90-6.95/kg MS (equivalent to roughly 30c/l incl VAT at Irish standard constituents); and announced their first price forecast (no dividend yet) for 18/19 at NZ$7.00/kg MS (30.5 c/l incl VAT).
Scope for price increases for Irish farmers
The Ornua PPI for May rose 5 points to 105.4 points, equivalent to a VAT exclusive milk price of 29.8c/l. This was a few points more than anticipated even only a few weeks ago, and is yet another sign that Irish co-ops are benefiting from the improved market returns we have been highlighting in this blog for a couple of months now.
Spot SMP/butter on 6th June 2018 would return a gross equivalent of 41.5c/l before deduction of processing costs. The average EU returns as reported by EU MMO for 10th of June around 38c/l – also before processing costs.
It is very clear that steadily improving returns are now translating into higher priced contracts between processors and their customers. Some co-ops have held their May payout, some even rolling in their bonus of last month into the base, a welcome move which secures it for future months.
It will be important for all co-ops to start leveraging those improved returns to pass back strong price increases on June milk and beyond.