Forestry Market Reports II

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Forestry Market Reports II

A turn around for the better?

EU powder prices reported by the EU MMO and average spots in the Netherlands, Germany and France have resumed their increase.  SMP spots have now broken the €2000/t barrier, with average EU prices close behind.  Butter prices, on the other hand, are somewhere between stable and slightly easier.  On the international stage, GDT is on its 11th consecutive positive auction.

Is global scarcity impacting prices?  Is intervention SMP finally working its way through the market place, after leaving EU stocks in recent months?  Is the kicking of the Brexit can to next Halloween at least buying us time of normal trading conditions, at best making a crash out Brexit less likely?

Improved prices

One thing for certain: all the indices industry watchers monitor are on the up.

To start at home, the Ornua PPI for April has lifted from 104.1 points for March to 105.9 points.  This is equivalent to a milk price of 30c/l + VAT (31.6c/l incl VAT), an increase of 0.6c/l on the previous month, and a little more than many of the main milk purchasers have been paying for March milk (see graph below).

Source: Ornua

The average EU MMO prices for week ending 5th May saw increases in milk powder prices, and a slight settling of butter, cheese and whey powder.  The upshot is that the returns for the notional Irish product mix in the table right is 36c/l before the deduction of processing costs.  Assuming our usual notional 5c/l, this would be equivalent to 31c/l + VAT or 32.67c/l incl VAT.  Again, 1 or 2 c/l above what the main milk purchasers payed for milk in March.

Based on EU MMO data

Other indicators have also continued to improve, not least GDT prices, with the auction platform registering last week its 11thconsecutive positive index movement, but also European spots and futures.

The GDT index is now 28.4% up on last November, with the most noticeable element the continued improvement in SMP prices, to a current level of $2521/t.

Source GDT

EU Spot prices have shown a recent resumption of SMP price increases, perhaps suggesting that SMP stocks sold out of intervention have by now mostly been absorbed in the market place.  Latest EU spots showed SMP breaking the €2000/t barrier, at €2023.  Butter prices are settling around €4150-4200 for the moment, with whey powder slightly weaker.

Source: INTL FCStone

As to current expectation of September 2019 prices from the EU futures markets (EEX), they predict a butter price of around €4370/t – slightly less than recent weeks’ expectations – but a SMP price of around €2,200, slightly up on previous results, and 10% above current spot market quotations.

The table below shows that the combination of those futures prices would yield a notional price of just over 34c/l + VAT.

What underpins the stronger prices?

We’ve seen for a number of months now that global milk output has grown by a lot less than expected, and crucially at a lesser pace than demand is growing.

Supplies of milk in the 7 most important export regions (EU, US, New Zealand, Australia, Argentina, Brazil and Uruguay), as reported by Rabobank in its Q1 2019 Dairy Quarterly Report, grew by a mere 0.1% for the first quarter.

The main reasons have been weather – drought and other inclement events –  and price related – producer prices have been falling in the last year, and no longer cover costs in many regions.

For the EU, Rabobank expect milk supplies to only start picking up in the second half of the year – which will be well past peak.

Source: Rabobank 2019 Dairy Quarterly 1

In the US, supplies are challenged also by economics, and prospects are poorer due to international trade challenges, especially caused by the Trump administration’s approach to trade with China.

New Zealand March milk supplies fell a dramatic 7.5% (9% for Fonterra), with Rabobank predicting lower growth for the rest of the season due to moisture deficit encouraging farmers, especially in the North Island, to dry off earlier.

In South America, production is on the up, but prices are poor, and local demand challenged by difficult economic conditions.

Finally in Australia, production is continuing to fall as margins continue tight despite some improvement in milk prices.

In China, imports have continued strong, with double digit growth expected for all of the first half, possibly more moderate in the second half.  Disease has cut back significantly pork production, which is both good and bad from a dairy consumption perspective: pigs consumer quite a bit of whey, so imports of that commodity will likely decrease.  However, pigmeat being one of the most important sources of protein for Chinese consumers, alternative protein, including dairy, will see an increase in consumption as pigmeat gets scarcer.

The recovery in the supply/demand balance has been further favoured with a rapid disposal of SMP out of intervention stocks. A total of 378,600t were sold since sales began (very, very slowly!!) in December 2016.  Most recently, 33 tonnes were sold on 16th April at the maximum offered price of €1660/t, leaving 1106t for sale at the next tender of 21st May.  What is left of the stock is held in Spain (510t), the UK (389t) and Slovakia (207t).

For some time, however, the view among commentators was that though the product was being sold out of intervention, it was taking time for it to be absorbed by the market, and therefore it continued to influence and restrict price increases for the fresh product.  It does look now like that effect has come to an end.

Source: EU MMO

So, should we see better Irish milk prices soon?

Logic would suggest that we should.  And this would be particularly important as peak milk production months are now upon us, and those larger milk cheques are critical to every dairy farmer in dealing with the still outstanding bills incurred during 2018.  While many co-ops provided much appreciated support in merchant credit facilities, rebates and even fodder imports when it was so badly needed, those bills must now be paid.  Farmers need every possible cent for the milk they produced last month, and for what they will be producing over the summer.

In the graph below, we compare the prices paid by the main co-ops for March 2019 as recorded in cents per litre in the Farmers’ Journal Milk League, and we compare them with some of the most relevant indicators we have already reviewed.

Some are paying less than the Ornua PPI, and only the West Cork Co-ops are matching (more or less) the current EU spot prices’ returns.

Sources: Irish milk prices from Farmers’ Journal March Milk League; various other indicators as per table above.

IFA President Joe Healy has welcomed the intervention by EU Commissioner Phil Hogan in the escalating fertiliser debacle that has seen the recent imposition of temporary anti-dumping duties on certain non-EU UAN fertiliser imports by DG Trade.

Mr Healy said, “Commissioner Hogan’s request of Competition Commissioner Vestager to take swift action to ensure the proper functioning of the EU’s internal fertiliser market, in light of questionable business practices with respect to competition rules, represents a key turning point in this case”.

“Commissioner Hogan’s assessment of the malfunctioning of the EU’s fertiliser market mirrors many of the conclusions raised in the IFA commissioned study into the sector, carried out by the Washington based International Food Policy Research Institute (IFPRI). Indeed, he rightly points to the need for price transparency and the operation of fair pricing mechanisms to create a properly functioning market.”

“The IFPRI report, published in 2016, found that EU farmers are paying among the highest prices in the world for mineral fertilisers. Anti-dumping duties and customs tariffs imposed by the EU Commission on certain non-EU fertiliser imports were costing farmers €1 billion per annum. It established that the increased concentration of EU industry since 1994 enabled fertiliser producers to significantly increase profit margins. Indeed, DG Trade, in its recent interim expiry review of ammonium nitrate anti-dumping duties concurred with the IFPRI findings regarding increased concentration of the industry.”

“More alarmingly the IFPRI report identified that EU fertiliser prices not in line with the predicted model outcome. It stated that “Based on the observed data, prices in Western European countries actually increased by 123%, while prices in Brazil decreased by 65% . . . . .  further suggests that additional factors, such as price fixing and cartels, might be operating in highly concentrated markets such as Western Europe”.

“In light of these findings it is all the more worrying that DG Trade saw fit to extend temporary anti-dumping (AD) duties recently to certain UAN fertiliser imports. This is despite the fact that IFA, COPA and other EU farming groups highlighted that the additional duties will cost farmers an estimated €2.7bn over the term, thus disproportionately affecting farm incomes which are already at an all-time low across many sectors.”

Mr Healy said, “Commissioners Malmström and Vestager must pay heed to Hogan’s request as it is in the Union’s interest to ensure that we maintain the competitiveness of the EU’s farming sector and support family

CLIMATE EMERGENCY DECLARATION MUST LEAD TO ACTION ON TEAGASC CLIMATE ROAD MAP – IFA

IFA Environment Chairman Thomas Cooney has described the Dáil’s declaration of a climate emergency in Ireland as “a wake-up call following a decade of climate inaction by successive Governments.”

Thomas Cooney said, “The first national climate road map out to 2030 was published in 2009[1]. The key actions that would deliver the greatest climate impact were known, but not acted upon adequately. Farm scale and community based renewable supports were not put in place, to support the displacement of fossil fuels. Adequate supports for retro-fitting homes and buildings with appropriate insulation and lighting were not introduced and the development of forestry on unenclosed lands was hindered. Instead we have lost decade to acrimony and finger wagging including trying to make farmers the fall guys for decades of climate inaction in this country. Amid all the noise in the climate debate, it has become lost that the key culprit of emissions spiralling out of control in Ireland is transport not farming and food production.

This climate emergency declaration must  focus on action.

Farming is one of the few sectors with a plan. Teagasc’s climate roadmap is an important scientific pathway to assist the agri-food sectors low carbon transition. This scientific plan is far better than the unrealistic proposals put forward by the Citizens’ Assembly or threats to the national herd.”

IFA again calls on Government to use this climate emergency declaration to co-ordinate relevant state agencies and Government Departments to maximise the delivery of improvements to farm level efficiencies; a reduction in fossil fuel use; and the development of on-farm renewables, as set out in Teagasc’s climate roadmap

Farmers are engaged in positive climate actions. Over 212,000 carbon assessments have been completed, as part of Bord Bia’s Origin Green programme. Over 40% of farmers participate in the Green Low Carbon Agri-Environment Scheme. Over 10,000km of biodiversity and climate positive hedgerows have been planted. Over 1,000 farmers interact in the voluntary Smart Farming programme. Farming needs to get the carbon and biodiversity savings recognised from these actions.

The agri-food sector is Ireland’s largest indigenous productive sector and a key driver of economic activity in every parish in Ireland. To secure a just and sustainable climate transition, future climate measures must lead to improved farm level profitability,” he concluded.

[1] Sustainable Energy Ireland (2009) Ireland’s Low-Carbon Opportunity. An analysis of the costs and benefits of reducing greenhouse gas emissions. 

IFA President Joe Healy said the Taoiseach Leo Varadkar and the Minister for Agriculture Michael Creed must maintain maximum political pressure at all levels to secure a €100m Brexit aid package for beef losses.

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IFA Farm Family & Social Affairs Chair Caroline Farrell said that Minister of State for Older People Jim Daly must retrospectively apply the three-year cap on productive farm assets to July 2018, when Cabinet approved the proposal.

“It is encouraging that the Heads of Bill are expected to be drafted by the end of May.  However, this is nearly a year after Minister Daly promised that the Heads of Bill would be brought before the Oireachtas,” she said.

Caroline Farrell pointed out that this means the Nursing Home Support Scheme legislation will not be amended until the end of the year, at the earliest, and won’t be operational until at least mid- 2020.

“This is nearly five years after the Government gave a commitment to introduce changes as soon as practicable to remove discrimination against family farms and small business under the Fair Deal scheme”, said Mrs. Farrell.

“The Government must honour their commitment and retrospectively apply the three-year cap to July 2018 when it was approved by Cabinet.”

She said that the Heads of Bill must guarantee that the three-year cap also applies to farms that are currently leased, but where a family successor gives a verified commitment that they would continue to farm the asset, for a period of six years.


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