IFA dairy chairman Sean O’Leary said that, while this week’s Fonterra auction result saw a 5.2% price reduction compared with the previous auction, Oz-based Abares is predicting strong dairy prices into 2014/15.
The Australian government’s agricultural research body has based its price predictions on robust demand throughout Asia, and China in particular, as urbanisation and the growth of westernised diets continue.
Mr O’Leary said: “We should not forget that, even allowing for the dip in the Fonterra auction, current commodity prices remain very strong by historical standards, reflecting generally higher global production costs as well as strong international demand and low stock levels.”
Mr O’Leary said the slightly reduced butter and SMP average prices in the latest Fonterra auction would return a gross Irish milk price equivalent of 44c/l before processing costs, allowing for today’s exchange rate with the US dollar.
The most recent available average EU prices for those two commodities, reported on March 9, showed a slight recovery for butter, and would have delivered a gross milk price equivalent of just under 46c/l before processing costs, he said.
Mr O’Leary added: “I believe we should take a balanced view of the fortnightly Fonterra auction results: the volatility of global dairy market prices is currently restricted by robust demand and low stocks, despite good output growth.”
However, Dairygold chief executive Jim Woulfe told those attending the recent Teagasc seminar in Horse and Jockey, Co Tipperary, that the current price of around 39c/litre is unlikely to hold for the rest of 2014.
Mr Woulfe’s views were based on Dairygold’s production levels of 3.5% over quota as of the end of February. All of the larger processors are also over quota.
EU Agriculture Commissioner Dacian Ciolos has also recently warned that milk prices are likely to be driven down by over-supply this year, with further cuts inevitable in the post-quota era from April 2015 onwards.
A report issued by the MTT Agrifood Research Finland predicts that the post-quota boom will see milk production concentrate in North European countries such as Germany, Denmark, Sweden, Poland and the Baltic states.
The Finnish researchers anticipates a coastal “milk production belt” running from Ireland through to Brittany, the Benelux countries and on to the Baltic States to the east.
The report also predicts Central Europe will be centre for cash crop production. The emergence of these commodity hubs may also be accompanied with sectoral rationalisation and related price implications. Ireland is already seeing a relative price shift.
ICMSA deputy president, Pat McCormack, notes that recent months have seen a notable dip in the prices offered by Irish dairy processors, relative to the neighbouring EU competition.
Of the 16 processors in the league of European milk prices, Ireland’s top creameries have fallen from ninth and tenth last December to 13th and 14th in January.
He said: “The rolling average for the 12 months showed that Irish processors paid below the European average and several questions arise from that fact: particularly interesting from an Irish point-of-view was the fact that Fonterra in New Zealand were returning €38.31 per 100kg, which is almost at the European average.
“Irish farmers have been asking how Fonterra can pay a price similar to the Irish price given their product mix and distance from the marketplace. We’re still awaiting an answer to that question,” said Mr McCormack, who is also the ICMSA’s dairy chairman.
“In the same way as we’re still awaiting an answer about what happened the bonus the processors and Co-ops have received from the IDB.”