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IFA President Joe Healy has strongly encouraged all eligible beef and suckler farmers to apply for the €100m BEAM (Beef Exceptional Aid Measure) before the closing date of Sun, September 8th.

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Supply growth remains subdued, but nervous sentiments impacts prices

It’s a bit of a broken record among dairy market analysts: milk output growth globally has remained very subdued – which should underpin better dairy prices –  yet markets are sluggish with easier butter prices the main characteristic.

Global milk production is actually down, estimated at -0.4% for Jan to June, with weak supplies in the US,  Australia and South America.  The new 2019/2020 NZ season looks set for a strong start, with June supplies up around 13% in milk solids terms.  However, June is the trough month, and in 2018 accounted for less than 1% of milk solids production for the full year.

EU production is only very modestly up (only +0.4% for Jan-June), but hides differing trends.  Hence, France’s negative production trend remains negative, but less so, while German production, rising in the first quarter, has been falling every month since.  Dutch milk output continues down (-2.7%) as last year’s herd reduction scheme continues to impact.  Between them, these 3 countries account for around 45% of all EU milk production.

Other countries expanded production, not least Ireland, +10% for the Jan to June period, the UK (+3%) and while Poland had been growing its production fast up till now, it has just registered it first negative since late 2016 in June, down 0.5% compared to the same month last year.

The main problem comes from demand-side factors.

Weaker economic growth

Global economic growth has been easing for some months now, with particular reports from the Eurozone, the US and China.  The IMF has for some time been flagging its concerns about a possible global recession, urging the US and China to resolve their trade skirmishes, and have now reduced their growth forecasts for 2019 and 2020.

Source: USDEC

Global dairy demand is a mixed bag

In simple terms, demand is more buoyant in (some) developing countries than in the developed world.  Hence, demand is relatively sluggish in the EU, while it is reported strong to very strong in Asia (including China).

Chinese imports, which had been growing in volume since last October, marked a beat in May, to recover slightly in June.

Year to date (June) volumes have increased very significantly, especially for certain products.  WMP imports have risen 29%, while SMP went up 28.4%.  Infant formulae imports were also well up, at 14.6%.  Bulk and packed milk was up a whopping 32%, while cream rose 53% and condensed milk 39%, albeit the last two from much smaller volumes.

Source: CLAL.it

On the other hand, demand in Africa and the Middle East continues to struggle. African demand for Jan-June is reported down 10%, although this does not include FFMP (fat filled milk powder or enriched milk powder) which is comfortably offsetting the fall.

Middle eastern demand, after a negative period, is believed to be on the way back up.

Oil price revenues, despite OPEC’s best efforts, have been hampered by crude oil prices remaining around $60/barrell.  For many Middle Eastern and some African countries, these are crucial revenues to finance food, including dairy, imports.

More positively, lower priced butter is now more affordable, and there are reports that this is starting to impact positively on some markets.

Geopolitical uncertainties

These are probably the main factors affecting both the global economic expectations and the market sentiments.

Brexit is the obvious and most immediate one.  Much has been said about the (already being felt) impact of Brexit on beef markets and prices.  But dairy markets, especially Irish dairy exports, are also very dependent on the UK – we have documented this in the initial IFA Brexit document back in March 2017, and you can check the facts and figures here.

Trade disputes between the US and the EU (Airbus v Boeing, and the imposition of import tariffs by the US including on EU dairy products), between the US and China (again, mutual imposition of import tariffs, which have led to serious implications for US farmers, and have given rise to the need for the US to spend a reported $16bn in farmer trade aids) are also causing major disruption in world trade.  The uncertainty this creates for the ability to trade any commodity is damaging all markets, including dairy markets.

Finally, a number of countries with sizeable populations and potential large markets for dairy imports are affected by wars and conflicts – e.g. Iran and much of the rest of the Middle East.

So, what impact on dairy prices?

EU dairy prices are a tale of 2 trends: improving powder prices and easing butter, cheese and whey prices.

Since January, average butter prices as reported by the EU MMO have decreased by €750/tonne, while whey powder has come down €150/t which is 17% to 18% in both cases.

Cheddar cheese prices have been relatively stable, by comparison, with a fall of only €70/t or 2.2%.

Meanwhile, WMP is now €140/t higher than it was in early January – that is 5.2% higher; and SMP prices have gone up €340/t, a spectacular increase of 19.5%.

Based on EU MMO data

GDT trends over the same period have been similar for powders, with a steady, if greater (WMP) and lower (SMP) price improvement than EU quotes have shown.  Whole milk powder (WMP) remains the product the most traded through GDT, as has been the trend from the very beginning.

Butter prices are not dramatically changed from early this year ($50 less per tonne), but this is after a major uplift from March to June.

Based on GDT data

Returns continue to ease – but remain above Irish milk prices!

Returns from dairy product are measured through a number of indicators.

Most directly relevant to Irish co-ops, because it reflects what they trade through Ornua, is the Ornua Product Purchasing Index (PPI).

Just like Irish milk prices, the Ornua PPI is announced in retrospect, and reflects returns for a basket of product traded the month prior to its publication.

For July trade, the Ornua PPI fell by 1.7 points to 104 points.  This was calculated by Ornua to be equivalent to a milk price of 29.31c/l + VAT (30.9c/l incl. VAT).  This is 1.4c/l more than Glanbia are paying for July milk, at 29.5c/l incl VAT.  As we have shown in previous blogs, only the West Cork co-ops have consistently exceeded the Ornua PPI returns in their milk prices over the last 10 months.  The other payers have undershot the PPI for the majority of the last 10 months, with Lakeland Dairies coming closest to it.  In July, though, it appears the gap has widened further: with the exception of Lakeland, who cut by ½ a cent, all other milk purchasers have cut their price by 1c/l, when the PPI equivalent only fell by 0.67c/l.

Other indicators (see table right) have continued to ease, but remain equivalent to milk prices before VAT of between 29c/l and 31c/l (30.6 to 32.7c/l incl VAT).

It would seem most Irish co-ops who wish to sustain their suppliers precious confidence have scope to hold prices for another while!

CL/IFA/23rd August 2019

IFA National Livestock Chairman Angus Woods has acknowledged the comments by Taoiseach Leo Varadkar that Ireland will block a Mercosur deal because of the burning of the Amazon rainforests, but he criticised the silence of the EU Commission.

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IFA Grain Committee Chairman, Mark Browne has said the decision by the Minister for Agriculture, Michael Creed not to grant a derogation for the use of the plant protection product ‘Redigo Deter’ is yet another severe blow for Irish tillage farmers.

IFA had written to the Minister requesting a derogation for the product, due to its role in the control of Barley Yellow Dwarf Virus (BYDV). A Teagasc report concluded that BYDV has previously caused yield losses of up to 3.7t/ha in winter barley and 1.2t/ha in winter wheat in Ireland. In monetary terms, this would reduce margins by €555/ha and €192/ha respectively in both barley and wheat.

The Chairman said there was already precedence for granting a derogation for the product within the EU – Belgium, Denmark and Poland were granted derogations for use of Redigo Deter in 2019.

“The Irish tillage sector has lost a number of key active ingredients including the fungicide chlorothalonil. The failure to grant a derogation for Redigo Deter will further jeopardise the viability of Irish cereal crop production, which is already down over 50,000ha since 2012,” Browne said.

The failure of the Minister to support the sector on this issue further erodes the ability of Irish farmers to compete against feed imports from other EU and, particularly, third countries who produce grains under lower environmental standards, according to Browne.

According to CSO figures, Ireland imported almost 500,000 tonnes of mostly GM corn from Brazil alone in the past two years. This grain is produced under a regime which allows the use of pesticides banned in Ireland along with widespread deforestation etc.

The Grain Chairman concluded by saying, “Different standards at Irish and EU levels for native and imported grains cannot continue to be tolerated. It is hypocritical of the Irish government to increase the regulatory burden on local cereal producers, forcing them out of production, while allowing increased access to non-EU feedstuffs produced to a lower standard”.

IFA Inputs Project Team Leader John Coughlan said compound feed prices are out of line with ingredient costs.  He called on the industry to reduce ration prices immediately given the perilous state of the beef finishing sector.

John Coughlan said, “Many compound feed mills are not reflecting the significant reduction in cereal prices, which unfortunately for tillage farmers are back by as much as €50/t. The failure by the mills to pass through the significant reduction in cereal costs Is indicative of a major swing by compound feed manufacturers, over recent years, away from the use of native cereals to imported maize and by products. Such a move is potentially undermining the provenance of Irish food production at a time when there is an increased focus on the carbon footprint.”

“The feed sector has a duty to maximise native cereals. It has been shown time after time that livestock rations that include a high level of quality native Irish cereals consistently outperform many compound feed rations based on least cost formulations, which invariably use high levels of imported by-products. Irish cereal production not only has an extremely low carbon footprint, but also enhances biodiversity when compared to imported feed ingredients.”


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