Speaking today in Brussels at the March COPA Milk Meeting, he said that despite today’s 6.3% fall in the auction, farm organisations from all over Europe reported significant milk price increases and continued restrained output.
O’Leary said that this latest auction and the first ever Global Dairy Trade annual report, published yesterday for 2016, showed how crucial it is to keep it in perspective.
It is an important international price discovery mechanism, but it sold only 12% of all powder and less than 5% of all butter traded internationally in 2016.
Also, today’s reduced Global Dairy Trade index remains 52% above the trough level of a year ago. Despite the powder price drop, the auction’s prices for SMP and butter would return a milk price equivalent of around 32c/L plus VAT, according to the IFA.
“The GDT annual report tells us that GDT traded only 636,000t of product during 2016, down 36% on the peak levels of trade of 2014.
“Most of this (73% or 464,000t) consists of WMP and SMP. This is a fraction of global exchanges in powder; less than 12% of the total quantities traded globally during 2016, and just under half the 950,000 metric tonnes of SMP and WMP combined traded by the EU in that year,” O’Leary said, sourcing USDA figures.
This must inform our analysis of the GDT auction. While it clearly influences buyers and sellers, it accounts for a small and decreasing portion of actual global trade, and is less important to us than EU exports and trade.
“EU commodity prices, as reported by the EU MMO for December, January and February, have been stable to slightly easier but, as at February 26, continue to return around 36.5c/L gross (before processing costs) – equivalent to a milk price of 31.5c/L plus VAT (33.2c/L including VAT).
“This compares with average January milk prices of around 29.6c/L plus VAT (31.2c/L including VAT), and shows there is still scope for some price increases before peak. A 33c/L [milk price] for March milk remains very realistic.”