Shot in the arm for EU dairy and milk market

The EU dairy market got a shot in the arm last week, with the biggest intervention skimmed milk powder sale since public tenders began in December, 2016.

On December 13, 60,537 tonnes of skimmed milk powder stocks were sold, with the EU Commission saying about three quarters of the skimmed milk powder bought into public stock has now been carefully returned to the market, helping to keep EU farm gate milk prices at a “satisfactory” 36 c/kg.

EU public stocks of skimmed milk powder (SMP) are down to 100,000 tonnes (from 380,000t in 2017).

The EU average SMP price at €167/100 kg (the highest in 2018) has risen 3.4% in a week , and 14% in a year.

However, the EU average butter price has fallen 10% in the past year.

The improved EU market for SMP helped the Dairygold Co-op Board to announce an unchanged price for milk supplied in November, on Tuesday. It stays at 32 cent per litre inclusive of 0.5cpl quality bonus and VAT, based on standard constituents of 3.3% protein and 3.6% butterfat.

Earlier, Glanbia announced an identical, unchanged price for November of 32cpl for November manufacturing milk. It included a Glanbia Co-op support payment to members of 2cpl, with Glanbia Ireland reducing its base milk price to 30cpl.

Glanbia Chairman Martin Keane said: “As highlighted in recent months, there has been a significant reduction in dairy market returns, particularly for butterfat, which we must reflect in the base milk price.

“Brexit developments and international trade uncertainty, offset to some extent by reduced intervention stocks and potentially lower milk volumes from key EU regions, are among the factors that will influence dairy markets in the coming months.”

Milk prices were also left unchanged from October to November at Arrabawn and Carbery (which has launched a new voluntary fixed milk price scheme in conjunction with the member co-ops).

There was some more encouraging price news on Tuesday when prices inched upwards by 1.7% in the Global Dairy Trade auction. The best commodity price gains were for important EU products, with a 4.9% recovery in the butter index, cheddar up 2.2%, and SMP up 3.4%.

Alongside these signs of demand for dairy produce, there are signs on the supply side of supply coming under pressure in the United States, the world’s second biggest milk producing country.

This trend could partly offset New Zealand’s current milk production trend, which is near record levels.

In Michigan, the US state with the seventh highest milk production, more and more dairy farmers are struggling to keep up with the costs of maintaining their herds and dairy facilities. According to the Michigan Farm Bureau, the state lost about 150 dairy farms in 2018.

In October, dairy farmers there were optimistic that a renegotiated trade deal with Canada would help to increase exports and raise profitability. However, Canada opened up less than 5% of its market to the US, nowhere near enough to stem the tide of milk over-production in the US.

From January to June in 2018, there were 26 family farm Chapter 12 bankruptcy filings in Wisconsin and three in Michigan.

Here in Ireland, IFA National Dairy Chair Tom Phelan has said there are many signs that dairy markets will be tighter and prices firmer into the spring of 2019.

He welcomed the prediction by dairy market experts at Rabobank that a global production squeeze will continue into 2019, and buyers may get caught out by the market “moving quickly upwards and catching them unawares” in the first half of the new year.

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