With fast rising feed, energy and fertiliser costs, IFA National Dairy Committee Chairman Kevin Kiersey warned that, just to maintain margins, dairy farmers would need milk prices at least 10% or 3c/l higher in 2011 than in 2010.
Mr Kiersey added that, with the strongly positive market outlook confirmed by the 7.1% increase in dairy prices at the first Fonterra auction of the year, and continued increases in EU milk powder prices, the Irish dairy industry should be well capable of returning the necessary higher milk prices in 2011.
He said, “We estimate feed costs, which have been on a continuously rising trend for several months, have increased by over 15% in 2010, with motor fuel costs up at least 13% and fertiliser prices still rising fast in response to oil price hikes. Fuel and energy cost hikes have also impacted contractor charges.”
“The exceptional weather conditions of November and December 2010 will also have massively increased feed and labour bills, as farmers tried to deal with freezing pipes and milking machines, and multiplied man-hours to ensure that the animals were kept fed and watered in constant sub-zero temperatures,” he said.
“The average milk production costs could rise by well over 10% in 2011. Having just finalised our Teagasc Dairy Monitor results at home, we expect costs on our own farm to increase by up to 3c/l this year,” he added.
“Delivering the stronger milk prices farmers will need, if only to maintain their margins, will be made easier by the positive market outlook which has been emerging in recent weeks. Skimmed, whole and whey powder prices have increased by respectively €500, €300 and €200/t on EU markets since the lowest point of 2010. The outcome of the first 2011 Fonterra dairy product auction earlier this week, through which dairy commodities were traded right out to September 2011, indicates this trend could last well past the Summer,” he said.
“There is no room for complacency in our co-ops, and it is essential that they would budget for higher milk prices in 2011, if they are serious about engaging farmers in the 2020 expansion project, with all the on-farm investment and eventual processing investment required to deliver profitable production expansion,” he concluded.