Unseasonable weather patterns may halt slide in global dairy prices

Well-above-normal US milk output over the winter and spring period has been a contributory factor to the downward pressure on global dairy product prices.

This was a global supply phenomenon, with output in major dairy regions also unseasonally stimulated by milder-than-normal weather conditions. Weather may now be about to halt, if not reverse, the slide in prices.

Weather may have direct and indirect effects:

* The direct effects may be animal stress (which reduces yield), poorer pasture conditions, and below-normal forage availability;

* The indirect effect may be to escalate the price of crops used in livestock production, the two most important of these being corn/maize and soybean.

A key measure as regards the outlook for output is the milk/feed price ratio.

The falling milk price, coupled with escalating feed costs, resulted in the ratio hitting an historic low in July.

Dairy farmers have responded by increasing the rate at which cow numbers are culled. The structure of the US herd, where the bulk of milk is produced by large-scale commercial farms, rather than traditional household farms, means reaction to the worsening economics is speedy.

The rate of culling is increasing — 60,282 in the week ending Jul 21, which is about 0.7% of the cow population.

The latest culling data were released contemporaneously with an inventory report which showed the largest month-on-month drawdown of milk powders on record.

The prospect of lower milk output and tighter inventories lifted milk and product futures. It may have been coincidence, but at the same time the GlobalDairyTrade event showed a 3.5% rise in the all-contract price.

Of itself, the situation in the US, unless it worsens considerably, will not cause a significant upward shift in global prices, although it may help stabilise prices.

But if weather elsewhere (crucially in New Zealand from now on) becomes negative for milk production, the combined effect (assuming no change in demand) will push up product and milk prices.

That is the hope for the Irish sector (producer and processor) at this moment, given the negative effects of this year’s summer and the prospective negative carryover effect of a poor fodder situation into next year. The one constant in agriculture is the vagaries of the weather.

* John O’Reilly is an analyst with Davy Stockbroker’s


Lifestyle

For the duration of the Covid-19 crisis, The Menu continues to bring you details of all the wonderfully innovative efforts ongoing in the Irish food worldThe Menu: Everybody needs good neighbourfood

More From The Irish Examiner