Speaking after the first June Fonterra auction lifted dairy prices by an average of 4.5%, IFA Dairy Committee Chairman Kevin Kiersey said this was yet another market indicator showing real price improvements for most dairy commodities.
“It shows a reversal of the market weakness of March and April and augurs well for further milk price increases. As co-op boards meet in coming days to set their May milk price, 33c/l + VAT is justified.”
“The latest Fonterra results have shown a massive 12.9% increase in SMP prices and 6.2% for butteroil (AMF). This further proves that increased global milk production continues to be absorbed by robust demand,” Mr Kiersey said.
“Now, European milk supplies are past their peak, and are seriously restricted by widespread drought conditions. US production is forecast to increase by only around 1.3% in 2011, which will be just enough to cope with internal demand growth. This means there will be relative shortages on the world market, at least until New Zealand and Australia supplies become available again in the back end, and as reported by USDA and Dairy Australia sources, global dairy market prices are firming as a result,” he said.
“Closer to home, after some price weakness, Dutch Dairy Board quotes for butter have been rising in recent days, with reports that actual spot trade for butter is ahead of DDB quotes at over €4,000/t or 80% over the intervention price. Demand for butter is rising as operators avail of the APS scheme to supply next winter’s demand, and availability is likely to be short, so that continued price increases are likely,” Mr Kiersey said.
“While volatility always remains a concern, the outlook for 2011 now appears far more positive than what might have been thought even just a few weeks ago. Co-op boards here will be meeting in coming days to decide on their May milk price. I urge them to see to it that the real buoyancy on markets and the positive medium term prospects of dairy commodity returns is fully passed back to farmers at peak production time, when it can make a significant impact on farmers’ profitability. A lift to 33c/l + VAT – which would require most co-ops to increase prices by around 1.5c/l – is fully justified,” he concluded.