Market downturn and milk price drop loom
Farmers fear a cut of up to 5 cent per litre and a possible further reduction in May, after strong warnings from the processors that the current milk price cannot be sustained, due to a sharp downturn in the world market for dairy products.
Farmers warn that a big price cut would be devastating because of the huge increase in production costs over the past six months.
World market trends have reduced the value of milk by between 10 and 15 cent per litre since the peak of the trade last autumn, according to TJ Flanagan, policy development executive with the ICOS co-ops grouping. He warns that “some processors will go broke” if they are forced to maintain the milk price for April.
Arrabawn Co-op chief executive Conor Ryan told farmers attending the group’s AGM in Nenagh that a reduction in prices for April will have to be considered.
“If co-ops don’t cut the milk price for April, some will go bust,” he warned. “The reality of 2007 was there was much more demand for milk products than there was product available, which drove up the milk price, continuing to mid-October. The Dairy Board return on skim milk powder has dropped from €3,800 to €2,100 per tonne. The downturn on butter has not been as severe.”
He said Arrabawn Co-op maintained the milk price over the winter, despite falling returns, because the throughput of milk was low, but the price could not be sustained for April as peak supply approaches.
Dairy farmers nationwide will be closely watching developments at Dairygold Co-op for leadership on the price trend as Dairygold is the largest farmer-owned processor.
Because of drought in New Zealand and Australia, there are hopes dairy markets will recover later in the year, but processors face a difficult decision now between reducing milk prices or continuing to subsidise from retained profits in the hope of a market recovery.
