Dairy recovery beyond question – but milk prices have a long way to go
Rapidly falling milk supplies and reasonably sustained demand, including some significant increases from China, have underpinned a recovery the first signs of which were evident 5 months ago.
No one now doubts that dairy markets are on the way back up – though of course no-one can guarantee for how long this will last.
Much of the production decrease is structural, however, underpinned by major increases in cow slaughters. Also, milk prices remain very far from what most EU farmers need just to cover their costs (never mind actually paying themselves!) – they have an extremely long way to go before restoring the majority of EU dairy farmers to positive margins.
The French Institut de l’Elevage, which fulfils some of the functions of Teagasc, calculates that, currenty, farmers across all French dairy regions need between €390 and €400 per 1,000 l to cover costs. The recent agreement between protesting farmers and private milk purchaser Lactalis was that the latter would pay €290/1,000 l to year end so as to average out €275/1,000l for 2016 – a full €125/1,000l below breakeven – to be clear, that is 12.5c/l below production costs.
German farmers need around 35-36c/kg according to EU’s FADN reports for 2014, with Dutch farmers needing something similar.
Current milk prices reported by LTO for July milk are between 20 and 23 c/kg for Germany, and 20 to 24c/kg in the Netherlands –
So milk prices have a very long way to go indeed before the most dynamic dairy farmers in Europe are incentivised by profitability to increase production further – bearing in mind that all have now suffered well in excess of 18 months at prices below costs.