Severe dairy market volatility returns

Tuesday’s GlobalDairyTrade auction heralded a return to severe global dairy market volatility, with prices at the benchmark auction rising at their fastest pace in seven months, two weeks after they fell to a 14-month low, writes Stephen Cadogan.

Dairy product prices showed their sharpest increase (2.2%) since May on Tuesday, attributed to falling supply from the world’s biggest dairy processor, Fonterra, which has cut the New Zealand milk supply forecast for the second time in as many months.

File image.

This is due to near drought conditions across New Zealand’s dairy regions, reducing pasture growth and milk production.

However, heavy rain and flooding expected from a major storm in New Zealand today could bring some relief for dairy farmers, leaving dairy markets volatile for the foreseeable future, and literally depending on the unpredictable weather down under, and how it affects the milk supply to Fonterra, which generates about one third of the world dairy export trade.

If drought continues, the growth in the exportable surpluses which weakened dairy markets since late in 2017 could slow.

In their recent analysis, dairy market experts at Rabobank said they do not expect exportable surpluses to completely overwhelm global markets, with China’s robust import programme continuing.

This spells good news for the EU, where milk prices had started falling, but satisfactory feed stocks on farms, and expanding herds, are supporting a trend of milk production growth.

Elsewhere, along with unfavourable weather hampering New Zealand production, growth in milk supply has moderated in the US, with cull rates increasing.

Meanwhile, Irish prices remain bouyed up by the Ornua PPI Index at 115, its second highest point since mid-2014.

And suppliers to the West Cork co-ops have been boosted by an end-of-year bonus of 1c/l on all 2017 milk supplies. IFA National Dairy Committee Chairman Sean O’Leary said all dairy co-ops should follow the Carbery example.

However, Glanbia Ireland CEO Jim Bergin has warned 2018 will be tougher than 2017.

He said the country’s largest milk buyer will respond by continuing to provide fixed milk price schemes.He revealed that the new five-year fixed milk price scheme linked to a feed offer of €30 loyalty reward per tonne for dairy feed has proven “very popular” with Glanbia milk suppliers.

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