Milk flows slow, and markets firm – but what of the impacts of Brexit and the EU debate on production management?
In all dairy regions bar the US, milk flows have been slowing, or even reducing in recent weeks. As increasing evidence of this is becoming public, market sentiment has been changing, with buyers now actually worried about possible shortages before year end. And the impact has been that the prices of most dairy commodities at global and EU level have been firming for several weeks. There is a way to go, however, before this translates into higher farm gate prices, and farmers all over Europe, New Zealand, Australia and elsewhere continue to struggle with milk prices well below production costs. Of course, this is playing the major part in the increased cow culls and output moderation we have been seeing in recent months.
As I write, confirmation is coming through that the UK electorate have voted to leave the EU. The first definite impact is a major fall in the value of Sterling which will be damaging to Irish exports if it persists, and significant falls on international stock markets. So, what will be the longer term impact of our most important export market exiting the EU?
Many European farmers have been suffering from negative profitability for over a year, and in many member states, this continues to affect views on dairy policy when it comes to the desirability to provide for Europe-wide, and EU-funded, potentially compulsory production management. Even the fact that production has started to moderate in the absence of any EU measures doesn’t seem to dampen that debate – at least for now. It will feature heavily in the June and July meetings of the EU Council of Agriculture Ministers, with demands for further support packages.
The logic of the argument is problematic (see my detailed article on the topic here: https://www.ifa.ie/article-222-and-the-flawed-logic-of-production-management/#.V21ZoaJ-3Ps ) but the levels of financial pressure on farms and the political pressure on governments and farm organisations, especially in Italy, Spain, France, Poland and Austria is such that finger pointing at expanding countries is influencing those debates irrationally.
EU production easing in April/May
All indications from the main EU dairy producing countries are that low profitability and weather have combined to slow or reduce milk output. Cow culls were up 9.1% for February according to Eurostat, with countries like Germany, France, Ireland and the UK all recording increased slaughters right up to date. Though those statistics are not segregated between dairy and beef cows, they are nonetheless understood to be mainly attributable to decisions by dairy farmers to reduce numbers and feed costs and/or remove poorer performing animals.