Farmers expect co-ops to be upbeat over milk prices after latest report.

Dairy farmers expect their co-ops to remain cautiously optimistic about milk prices for 2012, based upon the latest Rabobank Global Dairy Outlook.

IFA dairy expert Kevin Kiersey said the Rabobank report follows several upbeat reports backing a strong milk price. As a result, he is urging co-op boards to hold milk prices at least for spring.

“Despite global economic concerns, Rabobank’s 2012 to 2015 study, forecasts solid demand growth at 2.5% per annum, as against 1.6% in 2011,” said Mr Kiersey. “Most of the demand is expected from emerging countries, giving opportunities for the world’s dairy export regions, making dairy the envy of the food world.

“Rabobank suggests that milk production in low-cost regions like New Zealand, Australia and Argentina will not suffice to meet this demand, which creates opportunities for mid-costs regions such as Ireland.”

Rabobank global dairy strategist Tim Hunt said supply constraints and a structural shift in the costs of producing milk will sustain high milk and dairy commodity prices over the medium term.

Mr Hunt said liquid milk players and major Chinese processors have seen their returns decline, while consumer goods producers like Nestle and Danone are faring well. Cheesemakers are also improving their returns.

“Outsiders seeking entry to dairy, seeing it as an industry that has entered a golden age, will need to carefully choose their investments,” said Mr Hunt. “Those already inside need to continue to closely track industry direction and competitor moves to ensure they manage risks adequately.”

Mr Kiersey also noted disparity in dairy farmers’ returns. Some farmers are making similar or better margins to the pre-boom years, but not all. Farmers need greater skills to run their businesses, and those in pasture-based systems earn only modest returns on assets, he said.