Co-op chief predicts milk prices to rise to 38c a litre in months ahead

Dairy farmers can expect creamery milk prices to stay at around 35c or 38c per litre for the rest of the year, says Arrabawan Co-op chief executive Conor Ryan.

The Nenagh-based creamery yesterday released its 2012 accounts, with pre-tax profits down markedly to €424,311 from around €6.18m the previous year. However, almost €5m of this drop is explained by a share disposal that inflated the 2011 figures.

Operating profit for 2012 was at €1.14m, down from €2m in 2011. The co-op’s turnover was up by around €120,000 to €185.2m. Shareholders’ funds amounted to €35.3m, which represented no change on 2011.

Overall, 2012 was a tough year for the co-op, as it was for the broader dairy industry. Global and local milk price volatility led to a fall in the return for dairy products, and a consequent drop in milk prices.

Profits were also impacted by the co-op’s decision to support the milk price to suppliers during peak months. Raw material costs were also driven unusually high by drought in Argentina and a poor growing season in North America.

Nonetheless, despite the challenges of 2012, Arrabawn’s suppliers are more upbeat about the year ahead. They have signed up to their new milk supply scheme, which is due to kick in on Jun 1.

They are also encouraged by the likelihood of getting a higher price per litre. When questioned on a likely price per litre, Conor Ryan hesitated before agreeing to make a prediction.

“You want me to predict the milk price, do you want me to tell you the winner of next weekend’s 2.30 at Punchestown while I’m at it,” he started, then relented.

“It will be a strong price. We’re at around 35cpl now, and I’d say it will go up to 37cpl or even 38cpl in the next three to six months.

“I would see the milk price being strong for the coming year. Despite 2012 being a tough year, our members are more positive about the coming years as we are getting ready for 2015.

“We are increasing our processing capacity by around 50%. That is costing us around €20m in all. We’ve already invested €15m, so we’ve another €5m to go.

“Our members have signed up to the milk supply scheme, which will involve a maximum contribution of 0.7cpl from the suppliers. They realise that there is a cost involved in expansion.”

The co-op made significant investment in the milk processing plant to upgrade production, increase capacity and allow greater flexibility in the range of products produced.

Apart from the market volatility in 2012, Arrabawn’s books also carried around €1m more in fuel costs than in previous years. The co-op is also hopeful the new gas supply line to Nenagh from the national gas network will bring fuel costs back into line.

Arrabawn chairman Patrick Meskell said: “We would be the anchor customer and we are looking forward to this development as gas is such an efficient fuel that it will enable us pass on a better return to our milk suppliers.”

The dairy products division maintained market share in what is arguably the most competitive sector in the whole retail industry in Ireland.

Mr Meskell added: “This market is undergoing significant change and the most notable development is the ongoing growth in the sales of own-label products and a follow-on decline in branded milk sales. We have commenced a major promotional strategy to prevent any slippage in our position.”

The co-op’s board has also decided to rationalise production of animal feeds by phasing out production at the Greenvale plant in Thurles and transferring it to Dan O’Connor Feeds in Limerick.

Arrabawn Co-Op also yesterday presented its Quality Milk Award to dairy farmer Thomas Mahon of Kinvara, Co Galway.