Bank predicts orderly easing of dairy prices around the world
However, Irish dairy farmers point to cash reserves accumulated by milk processors, as part of the justification for holding milk prices at current high levels.
Leading EU milk processors Arla and FrieslandCampina have cut milk prices, as export supplies from increase, and Chinese demand weakens.
Milk supply is rapidly increasing from US and European farmers responding to “exceptionally strong margins”, said Hunt.
A strong start to the northern hemisphere production season has followed growth in output from New Zealand, the biggest exporting country.
Here in Ireland, milk production in April was 16% ahead of 2013 at some co-ops — including a big carryover from the 2013-14 quota year which ended on March 31.
ICMSA said on Tuesday dairy markets are still very strong, and they expect a strong milk price. Accumulated cash reserves have left processors in a very strong position should dairy markets weaken, said ICMSA deputy president and dairy chairman Pat McCormack.
He pointed out that processors did not pass back peak dairy product prices to farmers, and a number of them did not return the recent VAT rebate increase to farmers.
Earlier in the week IFA dairy chairman Seán O’Leary said current returns, accumulated 2013 profits, and bonuses from the Irish Dairy Board all justify milk prices being held. He said talking down milk prices is very unfair to dairy farmers, many of whom have hefty super levy bills.
“IFA has calculated that gross returns before processing costs remain around 44c/l for most product combinations and for a representative Irish product mix,” he said.
Softening prices are attributed to a strong start to the year in Europe, where a mild winter — at a time when high prices and an easing in quotas are encouraging farmers to raise productivity – has boosted milk output.
EU production rose by 4.7% year-on-year in January, and Rabobank has forecast European output growth to average 4% in the first half of 2014 (compared to a 1.9% drop in output in the first half of 2013).
UK output soared 14.2% in the two weeks to April 5.
Arla has cut the milk price to its 12,600 farmer members, vut only by 1.27p/litre, in the case of its UK member suppliers.
The downgrade follows a sharp reduction in world dairy commodity markets, which have fallen more at GlobalDairyTrade, the benchmark auction run by New Zealand’s Fonterra, the world’s top milk exporter, have fallen more than 20% from an early February high.
The Dutch-based FrieslandCampina has cut milk price from a peak of €44 per 100 kg of milk in December to €42.50 for April.
Southern hemisphere processors have not cut milk prices, despite prices at the GlobalDairyTrade auction recently falling for the fifth successive auction, the longest negative run since 2011, bringing to more than 20% the fall in dairy prices from an early-February high.
Here in Ireland, the Irish Dairy Board butter price has fallen more than €600 per tonne since Christmas. The overall IDB index fell from 133.5 in February to 131.5 in March.
On the global demand side, Rabobank’s Tim Hunt said lower economic growth will limit Chinese demand, especially after many buyers had bought forward supplies in the first three months, leading to world dairy prices, tracked by the United Nations, reaching an all-time high in February.
Many purchases other than China are less active in the global dairy market, due to their currencies falling against the US dollar.
Meanwhile, the US Department of Agriculture predicts a 2.4% rise in milk output this year.
