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23 May 2014

Dairy Market Blog

Dairy

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EU butter and powder prices easing further
Reports from member states for week ending 18th May, as compiled in the new Milk Market Observatory website of the EU Commission, suggest that while cheddar cheese and whey powder prices are holding their own, butter and powder prices are continuing to slip (see graph below).

EU Commodity prices to 18-05-2014
Returns from EU average prices for a representative mix of commodities slipped slightly compared to the previous week, and would amount to a gross 42.69c/l before processing costs – so still allowing co-ops to cover costs without reducing milk prices.
The average Irish market price reported for butter on 18th May was €3310/t, and SMP €2830/t – which would yield a gross return of 40.12c/l before processing costs. However, this would understate substantially the cheese/whey related element of the Irish product mix, and this element is returning over 6c/l more. (See table below).

Returns 18-05-2014
GDT Auction results down – 20th May 2014 – but prospect of markets bottoming out June/July
The weighted average GDT price fell by 1.8% on 20th May – this was the seventh consecutive fall, and the product concerned was for trade to November 2014, in 6 monthly contracts (starting with Contract 1, for June delivery).
The auction saw 33,677t of product trade, around double what was traded in the same auction last year. Prices for some commodities actually increased: AMF +1.9% and Rennet Casein +4.6%. However, those representing sizeable amounts of products fell. Hence, the price of WMP – still by far the largest in quantity traded – fell 1.1% compared to the previous auction results, SMP prices fell by 3.5%. Butter prices also fell by 1.9% and Cheddar cheese prices by 2.1%.
Analysts take the view that, with a drought/heat wave developing in California and various other parts of the US, the end of the season in NZ and the return to markets of buyers who either shied away from higher prices, or have exhausted their short term supplies/stocks, demand will pick up in the second half, and market prices bottom out in June/July.

Results GDT auction - 20-05-2014
Milk prices
Dairy prices may pick up sooner rather than later, but producer prices are now starting to catch up with the lower levels. A large number of EU milk purchasers have started to reflect the lower market returns in reduced producer milk prices (see Dairy Market Blog of 30th April 2014), because most of those milk purchasers deal with far less seasonally variable supplies than Irish processors do.
All Irish co-ops have held their April milk prices, but many are making less positive noises about the coming months. As outlined above, commodity returns to 18th May would cover processing costs of 5 to 6 c/l and allow for the continuation of current milk prices.
The National Dairy Committee is lobbying co-ops to hold the May milk price at least and minimize any adjustment later, to ensure that dairy farmers can optimize their income over peak months – something they rarely get to do.
Cash flow will be crucial on dairy farms as superlevy and merchant credit bills come due. Avoiding cash flow disruptions is also critical to maintain goodwill among farmers at a time when co-ops are looking for them to sign up to milk supply agreements and/or make financial contributions towards their co-op’s development plans.
CL/IFA/23rd May 2014

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