Forecasting Is Not an Exact Science when It Comes to Milk Prices – O’leary

IFA National Dairy Committee Chairman Sean O’Leary has warned industry and media commentators that their pessimistic views on the likely 2016 milk prices could have a damaging impact on farmers’ confidence, yet, as experience has shown, were as likely to be wrong as right. Industry focus should be on holding milk prices to sustain farmer confidence ahead of a challenging spring.

“Cast your mind back 12 months. At the time, Teagasc was predicting that the average price for 2015 would be 27c/l, wide of the actual 30c/l mark. Ornua and some co-op commentators were predicting spring 2015 base prices of 24 to 26c/l, yet dairy markets rallied in February and March 2015, allowing for stronger base milk prices just over 30c/l,” Mr O’Leary said.

“Expert analysts differ as to when market recovery will lift milk prices next year. If that is before peak or during peak, it will impact average Irish milk prices more positively than after peak. The truth is, while many will take an educated guess, no-one actually knows,” he added.

“Meanwhile, the rebalancing of markets is clearly underway. We have just seen two positive GDT auctions this month, with a 3.6% uplift followed by another 1.9%,” he said.

“Well established market analysts Rabobank, in their 4th Dairy Quarterly Report published last week, indicate that supply and demand are already coming back into balance. New Zealand output is well back with rock bottom milk prices and the lowest cow numbers in a decade. Australia’s production is also falling back because of El Nino related drought, and the same is happening in California. We also heard from the EU Commission that, while they expect 2015 to yield 1.5% more milk, they see EU production increasing annually by only 0.8% for the next decade, with global demand running well ahead at 2.1%,” he added.

“Fonterra reports this month that Chinese powder stocks are now about half of what they were last March, and that Chinese imports of all dairy products have been rising since July, up 25% for September alone. Also, populous SE Asian countries like Vietnam and Indonesia have also increased their dairy imports in recent months,” he said.

“All these elements suggest that output is easing, with regional differences, especially for the EU, and demand is picking up. While it will take some time for this to translate into a milk price uplift, it should allow co-ops to hold milk prices over the next few months to help maintain farmer confidence in anticipation of the forthcoming market recovery,” he said.

“Meanwhile, my advice to fellow dairy farmers is: when it comes to milk price forecasts, don’t believe everything you hear or read!” he concluded.

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