Slow Start to New Zealand Season Augurs Well for the Sustainability of Milk Prices at 38 C/l – Kiersey

IFA National Dairy Committee Chairman Kevin Kiersey said that a slow start to the New Zealand milk production season augured well for continued firm commodity prices at around current levels, and consequently for the sustainability of Irish producer prices. He urged co-ops to boost their suppliers’ confidence, and their ability to repay the massive feed bills they still owe the co-ops’ own merchant services, by announcing that they will hold their milk price at 38c/l till next Spring.

“All market analysts agree that world commodity prices peaked last April. However, while there has been some price falls from those peaks, we have seen these falls halted, and even a level of reversal begin in recent weeks – as shown in recent Fonterra auction price increases,” Mr Kiersey said.

“With global markets still influenced by constrained supplies, and despite rising US production, all eyes are on the New Zealand early season to assess how the supply/demand balance might evolve in the second half. Up until now, the assumption had been that milk output would take off in the Southern Hemisphere, on the back of higher producer margins linked to stronger milk prices and lower feed costs – and this sentiment led to weaker world prices from late spring,” he said.

“It now appears that the very early New Zealand season continues to be influenced by the effects of the earlier drought, and by a cold start to the spring. Buyers are clearly concerned about the availability of product to fill their end of year needs, and this has led to a level of recovery in the Fonterra auction prices, and in international quotes generally,” he said.

“The European market, has been relatively insulated from the international volatility after April, largely because of much lower milk production – though it has recovered somewhat past peak – low levels of stocks, and sustained internal demand. Hence, returns available to European milk processors for the last few months have been relatively stable at firm levels. In the case of the Irish product mix, those gross returns have been around 42 to 43 c/l before processing costs,” he added.

“The current outlook for global dairy markets for the rest of 2013, bearing in mind the seasonal nature of Ireland’s milk output, augurs very well for the sustainability of producer milk prices of around 38c/l for several months at least. I urge co-ops to signal this to their suppliers to boost their confidence and help them deal with outstanding input bills,” he concluded.