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Dairy Market Blog – Dairy prices stable to firm

Market returns, after falling steeply between February and mid-April due to the impact of COVID19 on food services and trade generally, have been rallying since May.  In recent weeks, spots have stabilised at those improved levels.  While they have a way to go to recover to pre-COVID19 levels, they nonetheless support current price levels comfortably, as is obvious from the gross returns/milk price equivalents from the main market indicators in the tables here.










Based on EU MMO data



















Source: StoneX

GDT: mostly Oceanian product trading

Many will have been worried by the 5.1% drop in the average GDT index in the first auction in August earlier this week.  The first thing to note is that trade concerns mostly new season Oceanian product for the period from Sept to December 2020.  Very little powder and no butter from European traders featured in this event.
Also, August does tend to be a summer holiday month the world over.  Serious trading decisions regarding the really heavy trading period – the last quarter of 2020 and first of 2021 – which gathers most of the demand promoting events and religious festivals (Thanks Giving, Christmas, Passover, New Year, Chinese New Year, Easter, Ramadan…) will start from autumn, after the summer holiday period.
So, we should not read too much in this month’s GDT results.

Global milk supplies subdued till May, now picking up

US milk supplies for June were up a massive 5% compared to last year, but that followed an equally steep 5% drop for May.

EU supplies were up 1.3% to May, leapyear adjusted, with the EU Commission predicting an overall increase for 2020 of just 0.7%, which would suggest tighter supplies for the remainder of the year.

New Zealand production for June – the trough month – was up 2% on June 2019.  Jan to June was up only 1%, but we are now in the new 2020/21 season.

Australian milk supplies for May were up a whopping 6%, following a series of monthly increases since January.  Season todate, however (July 2019 to May 2020) is down 0.6%.













Source: AHDB Dairy UK

Demand continues to be sustained by COVID19 supports

Just as the Irish government has brought in a July stimulus package, so have various governments around the world extended (or not!) the initial COVID19 supports targeted to businesses, employers and employees.  Those have played a crucial part in sustaining purchasing power and therefore demand, including for food and dairy.

Trade has resumed, with Chinese imports a mixed picture for June and the year to June.  Butter and AMF (butteroil) are doing quite well, while powder imports are weaker and infant formula just marks time for the year to June.

Whey powder and whey protein concentrates and lactose also appear to do quite well.


Source: StoneX

EU exports of butter and WMP have performed well, through the pandemic, with other products a less positive picture.

Butter exports for January to May rose a whopping 37% with WMP a more measured 8%.  SMP was down 17%, with cheese down 4%.

Outlook for milk prices?

In the rest of Europe, milk prices are recovering after steep falls.

Friesland Campina’s guaranteed prices has increased for July by €0.5/100 kgs, and by €1.00/100kgs for August.  Over those two months, that is equivalent to around 1.25c/l at Irish constituents over those two months.  The August milk price, at Irish constituents, would be equivalent to 28.5 + VAT (30.05 incl Irish VAT at 5.4%).

Arla UK will pay 29.26ppl for August milk, which at Irish constituent level is equivalent to 29.33c/l.

August milk prices for French suppliers to Sodiaal Co-op hover around 34c/l (3.2-3.8 constituents) and 36c/l (3.3-4.2 constituents) in Savencia.  Those prices include seasonality bonuses, and are an increase for Sodiaal, and same as July for Savencia.

Irish milk purchasing co-ops (see table right, based on the cents per litre column in the monthly Farmers’ Journal League, which is not ranked on that column, but on the value of solids in €/kg) have increased milk prices in June by an average of 0.84c/l + VAT (88.5c/l incl VAT).

The simple average of the table for June suggests an average price of 29.11c/l + VAT (30.68c/l incl VAT).  It is clear that this simple average is heavily influenced by the performance of the West Cork co-ops, all paying in excess of 30c/l + VAT – in fact the only milk purchasers to do so.














Source: FJ Monthly Milk League

Commodity indicators as analysed above, would suggest that there is scope at least for the lower payers in the table above to further improve their July milk price.  Anything less than 1c/l would be mean spirited, as volumes start to dwindle past peak.


IFA President Tim Cullinan called on co-ops to reflect on the significant dairy product price improvements of the last six weeks, which allow them to maximise the May milk price to support farmers’ stressed cash flow.

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Commenting on the 1.8 to 2c/l price cuts implemented by Lakeland, Glanbia and Kerry for March milk, IFA National Dairy Committee Chairman Tom Phelan said COVID19 has impacted on every aspect of the global economy.  “The dairy sector is no exception, and faces severe economic challenges.  However, we believe dairy farmers are being asked to pay too much of the price, too soon.”

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Coronavirus and Irish dairy

Covid-19 (the illness caused by the new Coronavirus) now permeates every aspect of our social, professional, cultural, sporting lives…  Is it any wonder, then, that it is also a major preoccupation for the dairy (and all other food) sectors?
In this blog, we try to examine objectively, without hysteria, and bearing in mind that the situation evolves by the hour, what Covid-19 might mean for Irish dairy farmers in 2020.

Modest increase in early 2020 milk supply growth to continue moderate, says Rabobank

Global milk output had grown very moderately through 2019, which, outpaced by reasonable demand growth in both emerging and developed countries, contributed to a very positive market outlook for 2020.

The EU produced only 0.4% more milk in 2019 than in 2018, and the US only 0.3% more.  New Zealand was in the same ballpark, at +0.3% (calendar year) while Australia was down 4.3%.

Early 2020 saw a very modest recovery of production in Europe, with January output estimated up 1%, up 0.9% in the US, down 0.7% in New Zealand (although up 1.1% on a milk solids basis), and for the first time in 20 years (!) up 0.5% in Australia – this despite the fires and drought.

Trends for both New Zealand and Australia are for lower production over coming months, largely linked to weather/soil moisture issues.  Australian production relies substantially on irrigation, and recent droughts have increased the cost of water.  For New Zealand, Rabobank in its just published Q1 2020 Dairy Report states it has revised its 2019/20 output expectation to a fall of 1% compared to the previous full season.

The lower production in Oceania is undoubtedly offsetting to some extent the demand problems related to Covid-19 in China.

Rabo predicts that US milk production will return in 2020 back to its longer term growth trend of around 1.5%.

For the EU, a smaller herd with higher yields, and bearing in mind individual countries’ dynamics, Rabo has revised its prediction slightly up, and plumps for a 0.8% production increase for 2020.

All told the Rabo prediction is that while production will continue to grow globally, this growth will most likely remain well below 1% for 2020 and into 2021 – and for the second quarter of 2020 at least, it is based on low comparables in the previous year.

Relative moderation of supply will not offset a fall in demand, but it should help diminish its impact on farmers.

Source: Rabobank

Coronavirus upsets global trade and global economy

Last December, Covid-19 appeared in China, which is our second most important export market for dairy after the UK, then globally, to finally be officially called a pandemic by the World Health Organisation on 11th March.

The impact of the efforts to contain the spread of the infection in China have affected demand (cities in lockdown, people no longer eating out, limited ability to go out for food shopping) but also supply chains (containers, full or empty, stuck at ports with staff unable to turn up for work to handle them and their contents, consequent global shortages of containers for trade, erosion of shelf life for product stuck in the chain, and likely delays to clear same when things return to normal – let’s nor forget that they will!…).

There is some evidence that, with China getting to somewhat better grips with the virus, the supply chain is starting to move again a little.  This is confirmed by Rabobank in its report, which states “Rabobank anticipates China’s consumer buying pattern to normalise by the second half of 2020, with evidence of improvement in some supply chains already visible”.  This view is confirmed by pigmeat operators in Ireland.

However, there are many factors at play which are causing concerns for the economy as a whole and dairy commodity markets in particular.

The slowdown in the Chinese economy associated with the extreme disruptions caused by the disease prevention measures had strongly reduced demand for oil.  Simultaneously, a supply and price war between Saudi Arabia and Russia has collapsed the price of crude oil to a current level of US$31.50/barrel (12th March 2020), around half of the price for most of 2019.

This is good for us at the petrol pump, but it affects the export income of many of the dairy importing countries which our important customers for us.

Source: WTI Crude Oil Prices –

This, and the announcements by the UK and the US of drastic measures in an effort to contain the virus have caused great jitters on stock markets, which fell on Monday 9th March, recovered somewhat on Tuesday 10th, only to fall even more dramatically on 11th March in reaction to Donald Trump’s announcement of restrictions on flights from Europe. Overnight on 12th March, the US Down Jones lost over 8%.

Rabobank and other analysts and commentators fear for the global economy, which already looked like slowing down for 2020, and expect sharp falls in oil prices could lead to a downturn, with global impact for food demand.  Also an issue are currency swings, as central banks in the EU, the US and beyond take measures to offset the difficulties caused by the Coronavirus (stimulus packages, interest cuts…).

Source: Dow Jones

Stock markets and commodity markets behave fundamentally the same, and the one thing they hate is uncertainty.  Nervousness leads to price decreases, and dairy commodity markets are no exception.

However, Rabobank advises that “global dairy commodity prices have already priced in the uncertainty – but a less-than-favourable expected finish to the New Zealand production season is providing some price support”.

Dairy commodity price impact

In recent weeks, average EU butter and powder market prices, as monitored and reported by the EU MMO (graph below) have weakened, with butter going down €100/t in the last month, and SMP around the same.  For all that, returns remain at around the level of milk price being paid by co-ops on average for 3.3% protein, 3.6% fat milk.

Cheese has held up pretty well, as has whey powder – both are important elements in our national product mix.

Data from EU MMO

Spot prices (first table below right) represent the price for a product available immediately, as opposed to an average price derived from a combination of contracts signed when market signals were more positive. They tend to anticipate market trends, and show the nervousness which Covid-19, falling oil prices and concerns over the global economy have caused.

Looking at the most recent available spot prices, the trend is not good: butter prices are €180/t lower than a month ago, and SMP prices over €200/t lower.  Let us bear in mind that very little product is traded on spots, and most Irish co-ops would have forward contracts at stronger prices at this point.  Spots, however, do indicate market trends.

Source: INTL FCStone

Data from EU MMO

The Ornua PPI for February was also pretty much stable, returning the equivalent of 31.97 c/l + VAT (33.7c/l incl VAT).

In the table below, which considers the returns from the main dairy market indicators, we allow for a nominal 5c/l processing cost which we deduct before recording the price equivalent before VAT in the right column.  The exception to this is the Ornua PPI price equivalent, calculated by Ornua themselves with a 6.5c/l processing cost netted from it.


It is difficult to look too far ahead on dairy commodity price trends at the best of times, but these are most definitely not normal times.

The impact on the global economy cannot be underestimated, but to quote Rabobank’s Q1 2020 Dairy Report again, “Rabobank anticipates China’s consumer buying pattern to normalise by the second half of 2020, with evidence of improvement in some supply chains already visible”.

We are certainly living through worrying times, with a lot of societal and global economic instability resulting from what is now officially a pandemic governments the world over struggle to try and gain control of.

It is important to remain as objective and calm as possible, and not talk ourselves into a worse crisis.  While there has been some weakness in prices in very recent weeks, the rising returns of prior months were not fully passed back to farmers, as IFA has evidenced in our regular blogs and market analyses.

In the interest of supporting farmers through a difficult spring, and not adding to the stresses caused by workload and increased costs – never mind the concerns for public health caused by Covid-19 –  we believe boards must at the very least hold firm on milk prices for the short to medium term.

We will get to the other side of this crisis.  Meanwhile, we all need to heed the advice of WHO and the HSE to ensure we and our families remain safe and well.

CL/IFA/13th March 2020

Dairy market blog – 3rd February 2020

Global milk supplies have been growing by less than 0.5% for most of 2019, and according to Rabobank’s Q4 Dairy Report, this trend will likely continue with growth of less than 1% through 2020 and possibly into 2021.

Ornua concludes that 2019 global milk supplies will likely be about on par with 2018.

Latest output trends in the EU have seen a fall off in Irish deliveries by 5.7% for December – though it should be remembered that the December 2018 figure was a massive increase on the previous December.  Output for Jan/Dec 2019 is up 5.2%, reaching (some expect exceeding) 8 bn litre.

Source: USDEC


Source: Rabobank Q4 Dairy Report 2019

In Germany, milk collections are estimated down by 0.2% at this point of the season compared to the same period last year.

Early January collections in France were up modestly at around 0.6% with the season todate up around 0.4% compared to the same period.

UK supplies for the 2019/2020 season todate are 0.8% up on the previous period, with late January supplies down 1.4%. INTL FCStone estimate that the December supplies were down 1.1% and January 1.3%.

In all three cases, while the supplies are only modestly up, or even down, on the reference period, they tend to be higher than the 3 or 5 year average, so the underlying trend of growth remains, but it is very subdued.

New Zealand supplies for the calendar year 2019 were down 0.32% (milk solids), though up 0.2% in December and something similar in November.

US output was 0.9% up in December, but up only 0.3% for the calendar year 2019.

Subdued international milk output, coupled with somewhat better international demand, boosted by cheaper dairy products, is the main reason why, despite concerns over Brexit, and other international trade difficulties, dairy prices have not fallen as much as expected during 2019, and have even started to improve, especially for SMP, since August or so.

Demand – impact of coronavirus and Brexit?

China has played a huge part in recent years in maintaining strong global dairy demand, as the comprehensive table below shows.  Since 2015, imports of bulk and packed milk has increased 81%, infant milk formula imports practically doubled, as did WMP.  SMP imports grew 72%.  Cheese, from low levels, rose 51% and butter rose by 60% by 2018, but has come back somewhat since.

Chinese consumers still have greater confidence in imported product, and the national capacity to produce more milk is in any case limited, especially by production costs.


The recent outbreak of the coronavirus, and the reaction to it, have seen entire regions closed down in an attempt to contain contagion.  As we write it is not clear how long it will take to first contain then fully treat/vaccinate the populations so that normal movement of people can resume.

Meanwhile, however, it is only to be expected that the movement of goods, indeed demand for goods, will be affected by the lock down.  What impact this might have on the global market for dairy will obviously depend on how soon the situation can be brought under control, then resolved.

Regarding Brexit, after approval by the UK and EU Parliaments of the Withdrawal Agreement, we have entered an 11-month transition period during which trading conditions will remain unaltered – so after a very uncertain 12 months, at least some short to medium term certainty.

That is not to say that there will not be plenty drama and political statements, as we already hear Boris Johnson say he will seek to diverge on a number of standards including labour, environmental and others, and Michel Barnier warn him that such statements will make trade negotiations difficult if not impossible.  Do expect possible fluctuations in the value of Sterling as markets take various views of the latest goings on, but no custom delays or tariffs until 31st December 2020, and after that only if we have a no-deal Brexit, or if we have a deal with includes some level of tariffs and requires some checks – and this is very likely.And yet, prices continue to firm

Concerns over the Chinese situation  and Brexit aside, it looks like, after the quiet period which always follows Christmas, most dairy commodity indicators have resumed their firming trend.

EU spots have seen butter prices stabilise for some weeks at around €3600, while SMP has been inching its way first above €2500/t and now above €2600.  Whey is the biggest gainer, however, now breaching the €800/t.

Source: INTL FCStone

EU average dairy prices show the same trend, with stable butter prices, rising SMP and whey powder prices.

Based on the prices reported for the EU average of the product mix most relevant for Ireland, gross returns for late January rose to nearly 38c/l, which is equivalent, after a 5c/l processing cost is deducted, to a milk price of 32.97c/l + VAT (34.75c/l incl VAT).

Based on EU MMO data

The trend towards firmer commodity prices has also shown through the first 2 GDT auctions of 2020, which saw an uplift in the price index by 2.4% (7th Jan) and 1.7% (21st Jan) respectively.  At US$4250/t, the butter price is comfortably above the middle of the price range for the last 5 years.  SMP, at just over US$3000/t is at its highest for the same period.

Taking stock of all the relevant indicators since mid-August, we see a significant increase in the milk price equivalent they represent, with the EU MMO and EU spot SMP/butter combo returning over 5.4c/l more, the EU MMO full mix 3.32c/l and the Ornua PPI (to December 2019) a more modest 1.33c/l.  Meanwhile, a comparison of the average Farmers’ Journal Milk Price League for August 2019 with an estimate of December 2019 suggests an increase of only 0.33c/l – this is because many co-ops cut their milk price in August 2019, at a time when commodity returns had just bottomed out.

Based on data sourced as above, and FJ Milk League

It is clear that there is scope for further milk price increases by Irish co-ops, after the modest price lifts (around 2c/l) applied in different ways for the October to December period.

CL/IFA/3rd Feb 2020

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