March Price Lift Justified as Idb Hold February Index and Fonterra Shows Modest Adjustments

Speaking at the meeting of the IFA National Dairy Committee held on Kilkenny’s Greenfield Farm, Chairman Kevin Kiersey said that the Irish Dairy Board had held the prices of butter and SMP traded by co-ops during March at the February level, which yielded a gross 37.86c/l before processing cost, at 3.3% protein and 3.6% butterfat, so that a March milk price of 33c/l + VAT was both justified and realistic.

He added that last week’s Fonterra Global Dairy Trade auction had seen a modest 2.4% price adjustment overall, and a 1.5% price increase for SMP. “I believe the latest Rabobank analysis that the underlying dairy market factors remain sound and tight is being confirmed. Market sentiment may be a little nervous right now, but demand remains strong from importing areas such as China and Russia, and is keeping up with increased supplies,” Mr Kiersey said.

Mr Kiersey stressed that IFA had argued in February that a 3c/l price increase to 33c/l + VAT was fully justified, and this argument remained valid for March, as no co-op had increased their February price much above 31.5c/l + VAT. He added that, as Cheddar cheese prices are now rising, a 1.5c/l price increase in March is both credible and affordable for all co-ops, and important to allow farmers cope with rising input costs and make necessary on farm investments.

“While top spot quotes have weakened somewhat in recent weeks, it is clear that, in the main, butter and powders have continued to trade at reasonably strong prices during March. In addition, Cheddar Cheese prices, which normally lag behind other commodity price trends by a few months, have started to lift in the last few weeks,” he said.

Commenting on global markets, Mr Kiersey added that the small 2.4% adjustment in this week’s Fonterra average auction price, and the 1.5% increase in average SMP prices reflected the fact that buyers still see the world market is in relatively tight balance despite recent weakness in spot quotes.
“It is clear to me that co-ops have scope to increase milk prices in March. To allow their suppliers’ margins to recover in the face of rising input costs, and to enable them to plan necessary on-farm investments, they must pass back 1.5c/l on March milk,” he concluded.