Dairy Market Blog

Dairy Market Blog
13 Jun 2014

Dairy Market Blog


Output past peak in Northern Hemisphere – but volumes well up

With the NH peak now almost passed, the massive output increases are starting to come back to more normal levels in the EU and the US.

However, volumes are still well up, with global supplies for the Jan-Mar 2014 period estimated at +4.3%.   Within that, for the same period, the EU is up 5.3%, New Zealand by 12.1%, the US by 1% and Australia by 2.8%.

There are expectations that the Australian and New Zealand new 2014/15 season could be impacted negatively by drought events arising from “El Nino” effects – though the degree to which this translates into lower than expected supply increases remains to be seen.

The USDA are forecasting a 4% US production increase for the second half of 2014 – though levels of debts on farms are mounting and causing difficulties on access to credit.

The EU had a record April peak increase of 7.3%, but production is now slowing seasonally. For the Jan-Mar period, the largest increases came in the UK +12%, France +7.2%, Germany 4.6%, the Netherlands 4.5% and Poland 7.4%. While Ireland only clocked up +0.3% in that period, our April supplies were up a massive 22.2% against the admittedly very poor April 2013 performance – though measured against April 2012, around 9% up.

In the UK, where massive supply surges had led to “distressed” milk (milk without processing capacity to match) at very low prices, output growth has also eased in recent weeks, leading to much higher spot prices of up to 27p/l (33-34c/l at current exchange rates).

Ireland is not alone: the EU is in preparation mode for the post 2015 era. Cow numbers are up by 1.3%, though lower milk prices and superlevy fears may slow production increases.

Are dairy prices bottoming out?

Reductions in commodity prices have been most severe in the GDT, where the index fell 26% between February and June. EU dairy commodities also fell, but by a lot less, just around 12-13% for the main commodities, in the January to June period.

returns 1

In recent weeks, dairy commodity prices have stabilised somewhat, with positive spot market and futures indications both within the EU (Dutch Dairy Board, Eurex) and outside (NZX, CME) – especially for powder where export demand remains good. The most recent GDT auction (3rd June) actually saw a 2.1% increase in SMP prices.

While there are expectations of growth in global powder production in the coming months as more dryers are commissioned, buyers appear to start indicating their readiness to buy for the second half of the year.
Dairy prices could well be bottoming out as global buyers’ needs for the second half of 2014 will have to be covered – however, it will be some time before we get more certainty of this.

Farmgate prices starting to catch up with falling markets

Even if markets stabilise, it remains the case that producer prices have not caught up with current market returns. For all sorts of reasons (product mix, seasonality, efficiency, other non-market considerations) they are unlikely to catch up fully, however, it is fair to say that milk price adjustments are inevitable.

Milk prices all over Europe are now starting to slide, in response to lower market returns, which have been slowing falling since January. This was already showing in the LTO Netherland February milk price league (see graph for April league below).

LTO April 14 milk league

In Ireland, the process has only started, largely because our milk supplies are far more seasonal than any of our EU neighbours.   Glanbia and Centenary Thurles have reduced their May milk price by 2c/l to around 35.2c/l +VAT (37c/l incl VAT), and while more co-ops may follow suit, others may hold due to their ongoing plans regarding the signing of Milk Supply Agreements and other plans requiring farmers’ goodwill.

Over 80% of Ireland’s exports go to EU member states (including the UK), so EU returns are probably the most relevant.

The top table below indicate returns for EU average market prices for an Irish product mix, while the bottom table factors in the actual Irish average price for SMP/butter (the only products for which the Milk Market Observatory publishes data for the main producing EU countries). These returns are gross, before processing costs are deducted.

While they have eased quite a bit since early 2014, it is a fact that they remain historically high at around 41c/l. For SMP and butter alone, those products are currently 63% and 40% above intervention price levels respectively.

EU Rturns Jun 14

Irish returns Jun 14


CL/IFA/12th June 2014

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