Kieran Coughlan: Perfect storm takes wind out of dairy farmers’ sails

Dairy markets continue to “bump along the bottom”, having failed to gain any serious upward traction over the last six months.

On the positive side, results from the last four Global Dairy Trade (GDT) auctions shows an alternating upward and downward trend within a range of about 2.5%.

No sharp declines, and modest recoveries, point to a bottoming out of the market.

The doubling of EU intervention storage is undoubtedly adding a floor to the market.

But, on farms, the drawn out period of low prices is more acute than the crash of 2009.

Looking back at the movements in the GDT Price Index, prices dropped below the key index measure of 1,000 in the 13-month period from October 2008 until November 2009.

This current milk price recession has lasted longer, with prices having dropped below and remained below the 1,000 mark from July 2014 to date, a period of 21 months.

With the index currently standing at 641, it would seem that a recovery above the 1,000 mark will take a good while to achieve.

On the ground, current milk prices are hovering around 24.5 cent per litre.

Looking back at the previous slump, prices slipped from a stable period of 33 cent in 2007 and 8, to 24 cent in 2009,and recovered to 30 cent per litre in 2010.

Our current slump follows a similar pattern, with prices slipping from just north of 30 cent per litre in 2015, to a current price of 24 cent.

Data points to more short term pain, with ICOS suggesting “that further milk price corrections are on the way”.

ICOS last week suggested current market results point toward a milk price of 20 cent per litre, but prices for butter, which makes up a large portion of our export mix, are helping shore up farm gate prices to some degree. Any slippage in butter prices would bring us back into a 2009 pricing environment, warns ICOS.

Hopes for a recovery in milk prices are drifting into 2017.

As more product enters intervention, the prospect of any drop in supply dissipates.

On the ground, farmers are hurting from a late spring, poor grazing opportunities manifesting in lower milk constituents and higher feed bills.

This perfect storm is taking a lot of wind out of dairy farmers’ sails.In real terms, their pessimism is palpable, feeding into reduced demand for dairy stock at marts, reduced appetite for expansion, and a switch from dairy breeding to beef breeding for the coming season.

Those of us involved know that addressing an oversupply is in many ways like trying to turn around a juggernaut.

At individual farm level, it seems counterintuitive to take action to reduce production. Most farmers wish they had more litres in the tank, in an effort to shore up their milk cheque. However, on a subconscious level, as farm debt creeps up, and the appetite for expansion evaporates, those operating at the margins will drop off in a process of natural attrition.

A number of high profile herd dispersals are one indicator that supply will contract or at least stabilise, over time.

Across the water, recent figures published by the Agricultural and Horticultural Development board indicate a drop in the number of UK dairy farmers by 3% over the last 12 months.

Across Europe, efforts to get producer organisations to collaborate in constructing their own temporary supply restrictions in production (for example, by drying off cows early, etc) in order to correct the supply imbalance are gaining momentum.

Last week, implementing regulations were published by the European Commission which paves the way for producer groups and co-operatives to engage in production planning.


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