Processors urged to hold prices despite predictions of significant drop
By: Louise Hogan
Predictions of a significant fall-off in milk prices from the first quarter of 2018 have been dismissed by the farm organisations.
Both the ICMSA and IFA have urged processors to commit to holding milk prices through next spring despite the deteriorating market sentiment.
Kevin Bellamy of Rabobank said the early indications were that milk prices across Europe could fall to 33-34c/l in the spring. Milk prices on the continent are currently around 39-40c/l, while Irish dairies are working off a base of 36-37c/l.
But the dairy analyst cautioned that these projections were dependent on supply/demand considerations. Mr Bellamy said prices of 35c/l had driven growth in most global markets, with increased output reported in the USA, Latin America and Australia.
IFA dairy chairman Sean O’Leary said that while international dairy prices had weakened, Irish co-ops were benefiting from contract returns signed in better times, as evidenced by the September rise in the Ornua PPI.
Mr O’Leary called on processors to reassure farmers by guaranteeing milk prices for the spring and thereby helping them plan for 2018.
“Irish farm-gate milk prices increased by 52pc, or 12c/l, in the last 15 months, but this was after over two years of falling prices, which 20 months were below 30c/l,” Mr O’Leary pointed out.
“In this context, even allowing for the weaker outlook for 2018, it is crucial that co-ops would hold milk prices at the very least until next spring, as they can afford to.”
Meanwhile, Ger Quain of ICMSA accused processors of “softening up” farmers in preparation for a price cut early in 2018.
While he accepted that markets had undoubtedly come back in recent weeks, he maintained that global supply/demand balance remained positive.
“It’s the old story where upward price movements trickle back to the farmers, while the very first sign of a fall-back in demand seems to act like milk price trap-door.
“We reject it, and we’ll resist it,” said Mr Quain. Although processors have been reticent about talking publicly of a drop in milk prices, dairies have warned suppliers at information meetings over the last week that markets had turned.
Dairies pointed to the recent 3.4pc drop in the GDT and the sharp reduction in butter prices, which saw spot butter prices fall from almost €7,000/t in late September to under €5,000/t last week.
In addition, the overhang of 400,000 tonnes of skim milk powder (SMP) in EU intervention stores remains a continuing concern.
Output in New Zealand has also been stronger through their spring, but Mr Bellamy said that the new government in Auckland had raised serious concerns around the sustainability of continued dairy expansion.
Most tellingly for European dairy farmers, however, Mr Bellamy pointed out that the EU Commission will not be in a position to support milk prices as actively in 2018 as they did in 2016 because of the volumes of SMP currently in intervention and new tendering mechanism that has been agreed for future intakes.