DairyDairy Market Reports

Modest Output Growth but Moderating Prices

A mixed outlook – modest output growth, but moderating prices

Global milk output growth has continued to moderate into July, indicative most of all of the impact of drought and heatwaves in Europe.  More modest US growth (+0.4%) also played a part, and a drop in Australian production for July (down 4.2%).  Fodder is short and feed expensive in Australia due to unfavourable weather factors.

Meanwhile, July New Zealand output was well up (+4.5%).  July is the first month of the new season, and the outlook is expected to be for strong continued output over the coming months, with a strong pasture growth index at a 5-year high. NZ production is due to peak in October, which is only next month.

Source: USDEC

An Oceanian/European-US split on dairy prices

While we continue to see firmer dairy prices being held in Europe, and to some extent the US, Oceanian prices, especially as measured through the GDT auctions, have eased considerably in recent months: the last strongly positive GDT auction was on 15th May last, and the latest today fell by an average of 1.3%.

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Source: GDT

Meanwhile, EU dairy prices had picked up, but there is now a little bit of weakness creeping in, as is evident most of all from spot quotes.

Source: FCStone International

In addition to the EU dairy spot quotes from Germany, the Netherlands and France, the EU Milk Market Observatory reports weekly on the spot price for raw milk in Italy and the Netherlands.

This had increased significantly since February with a few dips in the curve, but both indicators have eased in recent weeks, to €40.3/100 kgs for Italian raw milk, and €36.5/100 kgs for Dutch raw milk.

Average dairy prices reported by EU Member States through the EU Milk Market Observatory, on the other hand, in the main continue firm up to 9th September, the most recent date for which data is available.

Butter has lifted above €5600/t, while SMP continues over €1600 for the second week in a row.

Cheddar cheese is steady, while whey powder also holds its own after a good €50/t improvement since early August.

Based on EU MMO data

Irish/Euro returns above Irish milk prices

The Ornua PPI for August has increased by a significant 3.8 points to 111.1 points as Irish SMP prices in particular catch up with rising EU average levels.  The Ornua-calculated milk price equivalent is 33.5c/l including VAT – this is 1.5c/l more than what the three main milk purchasers are currently paying.

Source: Ornua

So, combining those various indicators to calculate a milk price equivalent, net of VAT, is summed up in the table right, with our more usual analysis of EU average market prices, both using Irish SMP and butter prices as reported by EU MMO and using the EU averages, outlined below.

Sources: EU MMO; FCStone International, Ornua, EEX, GDT

Based on EU MMO data

In summary, the main European indicators, including the Ornua PPI, would suggest the scope for milk price increase.  It makes the Irish co-ops’ cautious August decisions all the more disappointing, as apart from Aurivo who increased milk prices by a modest 0.5c/l, all those that have announced their August price as we write have opted to hold at July levels.

As farmers’ cash flow are stressed by massively increased by feed and fodder expenditure, it will be important for co-ops to pass back the maximum possible for milk to encourage farmers to keep cows fed and the milk flowing!

CL/IFA/18th September, 2018

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