Definite Dairy Market Recovery Must Be Leveraged to Address Cash Flow Crisis on Farms

IFA National Dairy Chairman Sean O’Leary has said multiple indicators are now confirming that the dairy market recovery is very much underway. EU and global output is back, demand is picking up in China and other markets, and prices continue to lift. Mr O’Leary urged all in the industry to make every effort to leverage the best possible returns over the coming months, and to pass back every last possible cent to help farmers deal with their cash flow crisis.

“EU supplies in July were back 1.4%, after falling behind last year’s trends for the first time in June. July supplies in France were down nearly 1% on previous year, while in early September weekly figures were back between 5% and 7%. German output for the first week in September was also back by 3.4%, confirming a downward trend which began in early May. UK production was back a massive 8.7% for July, with the same trend continuing in daily deliveries to date,” Mr O’Leary said.

“DCANZ yesterday advised that milk output in New Zealand was back 3% in August, which should be one of their major growth months as they head towards peak. They have also confirmed their forecast that the 2016/17 season would see a 3% downturn in total production. Meanwhile, Dairy Australia report that July supplies were 10.3% down year-on-year,” he said.

“The exception is the US, where August supplies were up 1.9% (as against July +1.7%), though the strong US$ and domestic demand have meant a lower level of export activity,” he added.

“While global supplies are falling, we are also seeing positive developments on the demand front. Chinese dairy imports for the January to August period are up a massive 27%. WMP imports increased by 22.9%, infant formula by 31.4%, while butter imports were up 34.6% and cheese 30.2%,” he said.

“Demand from Asia and South America for dairy products has also been up this year, with May figures showing a 7% and 5% year-on-year increase respectively, both on an increasing trend,” he added.

“The upshot of lower supplies and improved demand is that market prices have been rising over the past four months. EU average returns based on the Milk Market Observatory reports have increased by over 9c/l over that period, to a late September milk price equivalent of over 30c/l. The SMP/butter prices reached at last week’s GDT auctions would return a milk price equivalent of around the same level,” he said.

“Farmgate milk prices, which rose in Ireland in July and August are also rising into the autumn in Europe. Friesland Campina announced their third milk price increase, at 3c/kg to 29.25c/kg for October. In the UK, Dairy Crest, First Milk and Arla Foods have also been increasing milk prices again for October, by between 1 and 2 pence per litre. The Arla price increase also applies to their Danish and other European suppliers (2c/kg),” he added.

“Fonterra too reviewed upwards their 2016/17 forecast milk price for the second time in September, up another 50 cents to NZ$5.25/kg MS (a payout, including dividend, of NZ$5.75/5.85),” he said.

“It is clearly essential that Ornua and co-ops would make every effort to optimise returns from a fast recovering market place to ensure that farmers’ milk prices can be lifted above production costs and into positive margin territory as soon as possible in the coming months,” he concluded.

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