IFA National Dairy Committee Chairman Sean O’Leary has said the 10.1% increase in this week’s weighted average GDT auction price will silence the doubters as to the reality of the dairy market recovery.
He said that the GDT average auction price had increased by 34% in the last five auctions, with butter up 53% from its lowest 2014 level, WMP up 47%, SMP nearly 20%, Cheddar 12%, and Rennet Casein 31%.
“Some have suggested that the impact of the recent New Zealand drought was being deliberately exaggerated by Fonterra to manipulate the results of the auction. However, this makes very little sense when close on 75% of all New Zealand’s milk for the 14/15 season has been produced, and the price increases are of greater benefit to producers in the Northern Hemisphere,” Mr O’Leary said.
“The reality of the drought has been confirmed by official government declaration in recent days, and the 43% fall in the milk payout also explains why producers are scaling back output – it simply would not pay them to feed to drive production,” he added.
“With the fifth consecutive auction price increase, we are now seeing GDT prices well in excess of EU average market prices – €300/t for butter, €350/t for SMP and WMP. Those trends have already lifted EU prices somewhat, and we expect them to continue to do so,” he said.
“In Europe, the lack of profitability is also slowing down output at least as much as superlevy fears – as evidenced by the fact that production is falling in countries where production does not exceed quotas. This leads us to believe that, while a strong after-quota supply surge could disrupt or slow the current market recovery, it is unlikely that EU output will grow significantly while profitability remains as weak as it has been in recent months,” he said.
“While supply is being curbed, demand has actually been increasing. EU dairy exports, with the exception of cheese, have risen very substantially in 2014, despite the absence of China and Russia for a big part of the year. This was further boosted in recent months by a favourable exchange rate. Butter exports were up 17% in volume, while SMP exports rose by a whopping 56% in value,” he added.
“I believe we are experiencing a real, and somewhat earlier than expected, recovery in international dairy markets, which is currently protecting us from further price reductions, and will, over the coming months, be translated into better milk prices for 2015,” he concluded.