Global Dairy Markets Could Recover Quicker Than Predicted – Co-ops Must Hold Milk Prices

IFA National Dairy Committee Chairman Sean O’Leary has said that news from New Zealand suggested that their output would fall dramatically this year, with direct consequences, many already visible, for international dairy prices.

He said global markets could recover faster than predicted up to now, and that, together with the fact that the Ornua PPI for September justifies holding current prices, must give co-ops the confidence to announce that they will hold milk prices to year-end. This is crucial, he said, to help farmers cope with cash flow pressures in the context of volatile incomes.

“With Fonterra forecasting further production reductions for 2015/16 – 5% rather than 2-3% – and unofficially suggesting that it could be down by as much as 10% on the back of high culling and low feeding with potential further impact from El Nino weather patterns, numerous analysts have pored over the production and GDT trends to conclude that the current price increases were set to continue,” Mr O’Leary said.

“New Zealand market analysts AgriHQ, based on NZX furtures trends, predict the price of Oceanian whole milk powder could hit US $ 3,000/t by year end – this would be a further 32% increase on the last GDT auction price. ANZ bank in Auckland have further stated that the powder market remains “hyper-sensitive” to New Zealand supply conditions and GDT offer volumes. With those expected to continue down, ANZ analyst Con Williams said “The slow start and limited GDT offerings are expected to continue to be price supportive for now, especially while it’s the Europeans seasonal lull for milk supply and seasonal high period for Chinese milk imports,” he reported.
“Finally, Senior Economist for New Zealand’s ASB Bank, Chris Tennent-Brown, said that “The production outlook has materially weakened. As data becomes available to confirm this, prices will lift further,” he added.
“Meanwhile, closer to home, EU dairy product quotes have continued to firm since late August. Dutch PZ butter spot quotes were up 9.5% over that period, while SMP quotes were up 7.3%. German Kempten spot prices for WMP were up 12.5% over that period. EU average product prices also firmed slowly but steadily over the period, with butter up 4.6%, SMP up 4.7% and WMP particularly buoyed up, with a 10.5% price increase,” he said.
“While we must always take predictions and analysis with some caution, it is clear to me that output volume trends from New Zealand, now at peak, are crucial to market balance, and there is little doubt that the volumes are set to continue falling, possibly dramatically, with consequences on global dairy prices which are already starting to show,” he said.
“Irish farmers need to see the benefit of those trends sooner rather than later: their cash flow situation next spring will be difficult enough, even with stable milk prices in the interim. I urge all co-op board members, meeting this week and next, to hold their September milk price, and make a commitment to holding at least till year-end,” he concluded.