Dairy co-ops should already be factoring in a rise in the price they pay their milk suppliers on foot of a lift in overseas markets, says IFA dairy committee chairman Kevin Kiersey.
Addressing yesterday’s Virginia Dairy Show in Cavan, Mr Kiersey cited rises in Dutch auction prices for all dairy commodities, including leaps such as 7% each for WMP and SMP, 14% for butteroil, and 15.4% for milk protein concentrate.
Overall, the Fonterra average auction price, has risen by 3.5% and 7.8% this month. More importantly, the fall in US dairy output caused by its drought will keep sustained upward pressure on global prices.
Mr Kiersey said: “Fears of relative scarcity for coming months linked to the US drought has led to a fundamental change in buyers’ sentiment, who are now willing to pay more to secure product.
“The increase in the Dutch spot quotes are indicating that prices must improve. There is a fall in production in both the US and EU, there is less commodity around. We had been expecting the milk price to hold for the remainder of this year and for it to rise early in the New Year. Now we think the price will rise later this year.”
Mr Kiersey said dairy farmers in Cavan yesterday shared his view that the Irish co-ops would have to follow the global patterns by at least holding their present milk price for the remainder of the year. The trend has been viewed as a timely relief, given the pressures on farmers following this year’s unprecedented rainfall.
“The people at the Virginia Show were saying that they need to see an increase in price to help cover the increases in both volumes and costs for animal feed,” Mr Kiersey said. “Normally in the summer, farmers can build up some cash reserves because they don’t have to feed cattle indoors. This year was completely different.
“Co-ops have sold a lot more feed than they would normally have sold. A lot of guys were given that feed on credit. That feed money will have to be collected. There is now an onus on the co-ops to give farmers more money for their milk so that they can pay for the feed.”
Mr Kiersey cited five reasons why co-ops should feel obliged to raise their milk price: The hikes in input prices; weather-related pressures on feed costs; recovery in global dairy markets; the weakened euro; and the need to sustain farmer confidence to plan for post-2015 issues.
“The euro crisis has had one positive: Its impact on the competitiveness of our exports,” said Mr Kiersey. “In the last year alone, the euro has weakened by 13% against the dollar, and by 9% against sterling. On butter/SMP exported to world markets in dollars, this is the equivalent of a 3.7c/l increase in gross returns while, on cheddar cheese, the sterling value is now worth 3.4c/l more.”
The latest Teagasc figures showed dairy farmers could lose 30% of their income this year due to a combination of price cuts (up to 6c/l since late spring), a 10% rise in fixed costs and a 25% rise in feed costs arising from price hikes and increased usage. This means that 2012 dairy margins could decline substantially below those for 2010.
Mr Kiersey said: “It is vital co-ops start budgeting and planning now for the earliest possible milk price increases.”
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