Co-ops hold milk prices as EU slows production

An increase in the Ornua Price Purchase Index monthly indicator of market returns on dairy products offers co-ops to hold December milk prices unchanged from November.

The country’s biggest milk buyer, Glanbia, has led the way with an unchanged 32 cent per litre (cpl) including VAT at 3.6% butterfat and 3.3% protein, unchanged from the November price made up of Glanbia Ireland base milk price at 30 cpl and Glanbia Co-op’s support payment of 2 cpl .

Glanbia chairman Martin Keane commented: “The recent sale of skim milk powder out of intervention is welcome, as it has almost eliminated the stock overhang and improves market sentiment.

However, Brexit and global trade tensions continue to create some uncertainly around market direction

Lakeland has held its milk price at 32c per litre, inclusive of VAT and lactose bonus, for December milk supplies.

With Brexit the largest trading challenge, threatening the 25% of Irish dairy exports that go to the UK, and significant cross-border milk flow, the Ornua PPI gain to 107.5 in December from 104.9 in November is encouraging, but it is in sharp contrast with other EU countries, where prices for December milk were expected to fall.

According to the Dutch LTO farmer organisation’s monthly milk price monitor at 17 European milk processors, December milk prices per 100kg will fall €1 at DMK and Arla; and €1.20 at Dairy Crest (but due mainly to the decline of the British pound, rather than market trends).

LTO says further price cuts have been announced across the EU for January milk, by FrieslandCampina (€1), Arla (€1.50) and Royal A (€1). Dairy Crest will lower its January and February milk prices.

Prices are being cut despite slow EU milk production since August, apart from in Ireland.

On the demand side, the butter market is very quiet. The skimmed milk powder market has recovered to above the intervention price level, with a solid bottom in the market, according to LTO.

Global production volume increases are unlikely to match growth in global demand in 2019, says Rabobank.

Bord Bia sources said last week the increased Irish production late in 2018 has left many co-ops with higher stocks in place.

The impact of those stock sales will be felt in early 2019, which is likely to be a challenging one in terms of prices, at minimum for the first half of the year

- says Bord Bia.

However, the market for dairy produce in 2019 is reasonably positive, including relatively low global stock levels, according to Bord Bia.

“The Netherlands, France and New Zealand have increased significantly their exports of specialised nutritional powder to China. A number of Chinese-owned facilities in New Zealand and in France are now in production and sending product to China. Similar investments are ongoing in Ireland, a testament to the perceptions of Irish dairy in that market.”

“Overall demand in China remains likely to continue to grow in the short term, despite ongoing Chinese government efforts supporting domestic production. Ireland will be maintaining and looking to grow its position in a growing market.”

China accounted for 26% of the world’s dairy imports in 2017, with New Zealand taking by far the largest share of these imports, at around 40%, and benefiting this year from near record milk production levels.

According to the latest Rabobank report, Chinese milk production growth has not kept up with consumption, and low year-on-year growth in imports has put pressure on inventories.

With some concerns over the impact of US tariffs on input costs, production growth is expected to remain constrained, while consumption growth is expected to continue.

This will keep the Chinese active in the global market to maintain stock levels, at least in the early part of the year, when they can take advantage of reduced tariff rates for New Zealand products.

“Butter prices look set to ease somewhat through 2019, having enjoyed a sustained, record high. Volume demand for Irish butter is unlikely to fall. Premium positioning in the US and the investment in manufacturing facilities in Ireland will ensure that butter remains a central component of dairy export success.

“The industry are increasingly realising opportunities, supported by Bord Bia’s priority markets work, to supply Asian markets that have low dairy self-sufficiency with dairy product, particularly on the ingredients side.”

In the last year, volumes of Irish skim and whole milk powders and whey exports to Asia and the Middle East rose by 10%. Ireland exported more than €1bn of butter in 2018 for the first time, thanks to prices as highs as €5,500 per tonne.

In December, the price was back to €3,300, but the global demand for butter is not likely to change in the short term, as consumers turn away from vegetable fats for perceived health reasons and the global market supply remains relatively tight, according to Bord Bia.

The Dutch LTO farmer organisation’s monthly milk price monitor for November showed an EU rolling average milk price for the last year of 34.12/100kg, which compared with €32.87 at Dairygold; €32.18 at Glanbia; and €33.20 at Kerry Agribusiness.


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