What prospect for farmgate milk prices this summer?
After the major shock of up to 3c/l coming off the first two big months of the dairy year, and somewhat more optimistic prospects for dairy markets than was feared even only a few weeks ago, farmers could legitimately expect stable milk prices over the next few months.
Most co-ops, we have shown in throughout 2019 and into 2020, have undershot the most relevant indicators (including the Ornua PPI) for most of the last 18 months, and would therefore have some scope to hold prices while markets come back to meet them.
There remains some uncertainty, of course: Firstly, we do not know how long it will take for our food services customers to return to sufficient levels of normality after the COVID19 lockdown to constitute again a strong outlet for dairy products.
Secondly, we do not know the extent to which the impact of the lockdown on the economy will affect consumer purchasing power and demand.
And finally, the likelihood of a no-deal Brexit appears to have increased in recent weeks, as the UK refuses to seek an extension of the transition period which ends, reneges on its customs commitments between the EU and the UK with regards to the NI/UK/ROI situation, and as British MPs last week voted against a bill aiming to protect UK farmers in terms of food standards conceded on imports.
2020 will be a difficult year for farmers. Farmers will need support, from the EU and government in terms of market support measures and the provision of COVID19 related competitively priced working capital, and also from the perspective of achieving the best possible deal on Brexit, and should no deal be doable, to be supported in coping with the impact on markets and prices.
But they will also need support from their co-ops. The fact is that with COVID19 has created a huge challenge on the sector, which boards, management teams and most of all workers in co-ops have managed remarkably, by collaborating on complex re-organising and contingency plans which farmers are fully appreciative of. As a result, every drop of milk through peak is being collected and processed, which is crucially important for farmers.
Beyond this, however, co-ops must do everything in their power to hold prices at the highest possible level. The medium-term outlook is better than, or at least not as bad as, was earlier predicted. Farmers will need their co-ops to look to costs beyond milk prices, and just like farmers are having to do, reconsider their margin expectations for the year.
CL/IFA/20th May 2020