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28 Oct 2016

Dairy Market Blog

Dairy, Dairy Markets, FMP, Liquid Milk

Irish milk supplies fall back for the first time in September

Not surprisingly, September Irish milk supplies have now started to fall back below year-earlier levels, joining other heretofore dynamic milk producers France, Germany, the UK and Poland.

cso-milk-supplies

Source: CSO

Only the NL continue to increase production – albeit at slower rates – and this is believed to be linked to the prospects of new phosphates limitations which are to come in from next year.

The map below, produced by the EU MMO, shows clearly that since the beginning of the season last April, production in most EU member states has fallen back, in some cases very dramatically.

eu-milk-deliveries-map

Source: EU MMO

EU August supplies, according to the EU MMO, fell back for the third month running, by 1.5% below August 2016.  All of this well before any impact from the EU reduction scheme, which only requires producers to reduce production from October.

eu-milk-deliveries-graph

Source: EU MMO

Either way, EU supplies are not about to recover, even allowing for improving milk prices, as production costs remain significantly higher than the milk price in most EU countries, as confirmed at this week’s COPA Milk Group meeting.

Also, cull cow numbers have increased in most member states.  EU overall numbers were up 6.9% for January to July, and while there is not an exact correlation between cull cow numbers – and those are both beef and dairy –  and production trends – e.g. Netherlands – a shrunken dairy herd which will take time and improved incomes to restore is definitely the outcome in many of the traditional dairy production regions.

eu-cull-cows-per-country

Source: Eurostat

The EU Commission expects production to fall further in the last few months of 2016, by between 2.1% and 2.9% for September to December.  For the full year 2016, the EU Commission predicts an overall increase of only 0.6%, followed in 2017 by an even more modest 0.5% increase.

Global supplies also falling – except in the US where production is picking up

In New Zealand, supplies for September were 2.9% below the 3-year average (last year’s September supplies were exceptionally low), so that July to September output is down 0.8%.

nz-milk-supplies

Source: DCANZ

Australian September supplies were down 10.2% on last year, while the Jul-Sep supplies were down 9.9%.  Weather and lack of profitability have collapsed supplies.

australian-milk-supplies

Source: Dairy Australia

In South America too, supplies have fairly collapsed.

Argentina’s August milk supplies were 12.8% down on August 15, and have been behind the previous two years for all of 2016 todate.  2016 output todate is 11.3% down on previous year.

argentinian-mik-supplies

Source: CLAL

The same picture emerges from Brazil, where June supplies were 10.3% below June 2015, and again total 2016 output todate was below both 2014 and 2015, down 6.37% on the year-to-date figures for 2015.

In the US, milk production continues to grow.  September output was 2.3% – a steeper growth than August’s 1.9% –  while the year to September was up 1.7%.  The national herd grew by 21,000 cows in the June to September 16 quarter when compared to last year.

us-milk-supplies

Source: USDA

EU dairy commodity prices settling at strong levels

EU dairy commodity prices have settled a little in the last week.  Figures from the EU MMO dated 23rd October suggest a very slight easing in most commodity prices.

Generally, reports are that demand is gone a little flat, even down, possibly because markets have been satisfied for the short term after a bit of a rush to secure forward deal.  Some reports even suggest that buying at the SIAL trade fair in Paris may accentuate that trend short term.

eu-commodity-prices-graph

Based on data from EU MMO

For all that, prices remain reasonably strong, still over 61% above early May level for butter, 24% for SMP, 38% for WMP and 72% for whey powder.

eu-commodity-prices-table

Source: EU MMO

When processed into a milk price equivalent representative of an Irish product mix, those slightly easier prices continue to return a gross return in excess of 35c/l – auguring a farm gate milk price equivalent, for EU average prices, of around 30c/l + VAT or 31.5c/l incl VAT.  A little less, around 30c/l incl VAT, when we factor in the Irish SMP and butter prices.

eu-commodity-returns

irish-commodity-returns

Based on EU MMO data

Improvements in demand, and the fear of shortfalls, had prompted many milk purchasers to raise their milk prices. Since July, this has been reflected in a 5.3% rise in the EU monthly average, to a September level of €26.99/100kgs, an increase of 2.3% on the previous month.

Dutch spot milk prices, which have been rising rapidly since May, have now stabilised at EUR42.00 per 100 kg. Italian prices continue to climb, reaching EUR40.5 on Oct 16.

The main Irish milk purchasers are paying 24.7c/l + VAT for September milk.  That’s 26c/l including VAT.  There is clear scope for further milk price increases into October – the first month in which farmers are being paid to reduce milk production –  which Irish co-ops must pass back to boost farmers’ cash flow.

CL/IFA/28th October 2016cow

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