Milk price guessing game continues

by Stephen Cadogan

The milk price guessing game continues for dairy farmers, with the latest clue coming from New Zealand, where the weighted average of all products offered in Tuesday’s Global Dairy Trade auction rose 5.9%, its biggest increase since November, 2016.

In the five main global milk producing regions, annual comparisons in November showed an overall milk production increase of 1.2%.

But with dairy product demand forecast to grow annually by 1.7% to 2.1%, major imbalances in global markets in 2018 are unlikely, according to some market analysts.

However, EU Commissioner for Agriculture and Rural Development Phil Hogan has warned the dairy industry in member states not to create a milk surplus that could destabilise the market.

Rising milk production in the EU and a seasonal new year dip in demand have left EU wholesale dairy product markets weaker than 12 months previously, with the exception of butter.

However, markets stabilised in January, with even skim milk powder steadying, as the EU Commission moved to sell intervention stocks.

The EU is leading a global recovery in milk production.

However, the effects of this trend on world markets are being tempered by New Zealand milk production for December slumping 4.6% in milk solids, and 2.6% in volume.

Due to soil moisture deficits hitting peak yields in New Zealand, a 3% fall in the milk supply for their July 2017 to June 2018 milk season compared to 12 months previously is forecast by Fonterra, which collects more than 80% of New Zealand’s milk. Meanwhile, in Europe, the compulsory herd reduction in the Netherlands due to a pollution crackdown by the EU has also led to a milk production fall, with annual production back 0.2%.

Dairy farmers have seen volatile milk prices gyrate from as low as 22c per litre in 2009 to 47c in 2013.

Last year was one of the best years ever for Irish dairy farmers. However, prospects now are again unpredictable, posing very difficult decisions for farmers offered fixed milk prices by their co-ops.

For example, Dairygold Co-op suppliers have until February 16 to respond to the offer of a three-year fixed milk price of 31.25c per litre for 5% or 10% of their milk supplies.

Co-op chairman John O’Gorman said it will allow suppliers fix the returns they get from a portion of their produce, to protect their profit margin. “We are pleased to offer our members the voluntary option of a new fixed milk price scheme particularly in the context of recent months in which we have seen significant dairy market volatility.” For a supplier delivering the 2017 average Dairygold milk constituents, the fixed price is equivalent to 34.77 cpl.

The offer comes as Laurie Margrain, chairman of Open Country Dairy, New Zealand’s second biggest milk processor, says the global milk price outlook for the next year looks “relatively stable”.

According to Margrain and other New Zealand dairy industry leaders, the current New Zealand milk production fall, due to dry weather, foreshadows the end of the country’s steady dairy expansion over two decades, stalling now due to land use changes and increasing constraints on the number of cows milked.

Margrain said the country’s overall milk production will not rise much higher than it is today.

Since 1990, the New Zealand milk solids growth averaged 4.4% per year, but is predicted to be only 1%-2% for the next decade.

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