With milk prices improving in Ireland since July in response to a mostly supply driven recovery, the mood on Irish dairy farms has improved immeasurably as Christmas approaches, even if many bills have yet to be paid and catching up with cash flow needs remains a top preoccupation.
The prospect of viable and profitable milk prices for peak 2017 is very real, as Ornua predict an average 2017 milk price of 33c/l at 3.3% protein and 3.6% butterfat.
In this final Dairy Market Blog of the year, I propose to examine the positive trends, the possible headwinds, and the sources of uncertainty which will shape 2017. No one can ever claim their predictions are guaranteed, and mine are no different. But there is a lot we can tell from the trends and factors identified by dairy operators and market commentators all over the world.
Will global milk production start increasing again in response to improved milk prices?
The short answer to this question has to be yes, in time. In the absence of volume restrictions (quotas), it is the normal response you would expect from farmers faced with the prospect of improving incomes from higher prices and increased volumes.
However, this assumes a sufficiently sound financial situation on farms to be able to push up production (feeding, extra cows…), and it also assumes a sufficient number of animals.
The reality in the last 2 to 3 years is that prices falling to below production costs in all regions bar the US have eroded profitability, to the point in some cases of bankruptcy.
Also, cow culls have increased very substantially especially in the EU (+7.5% in the year to September), but even in New Zealand in the earlier part of the year – though that trend has now turned around there.
For the short to medium term, it is hard to see farmers who are still struggling financially with prices which have yet to rise above their production costs increasing cow numbers or feeding extra to increase output.