GlobalDairyTrade index crashes 10.6%
The ninth consecutive falling auction price came as no surprise to industry analysts looking at futures markets, and at the weakest markets since 2009.
The result reinforces analysts’ expectations of no sustained improvement in prices until 2016, because of global milk supply continuing to expand, despite dairy commodity prices falling more than 40% for milk powder, and about 30% for cheese, butter and whey, compared to a year ago.
And in the first five months of 2015, Chinese imports fell 38%, leaving about 507,000 tons of milk equivalent per month looking for a market.
With Russia out of the market, importers such as Mexico, Southeast Asia and Japan, have bought aggressively, but can’t make up for the absence of Chinese and Russian buyers.
ICOS sources last week warned of persisting dairy market weakness, with European values indicating a spot value for milk of 23c including VAT.
They said Irish milk prices are significantly above this level due to product being forward sold at higher prices, and to product mix improvement, with Irish exporters now relying less on the base commodities.
“If all the current indicators are correct, and the current market weakness persists for the full season, the European Commissioner can expect significant farmer unease across Europe, as well as some shrill voices looking for the reinstatement of quotas,” warned an ICOS source.
However, ICMSA has warned co-ops setting monthly milk prices that the Ornua monthly indicator of market returns currently justifies a farmgate milk price of at least 28 cents per litre.
“It’s critical in times of uncertainty to seek certainty where it can be found, and it’s absolutely certain that the Ornua PPI currently justifies a milk price to farmers in excess of 28 cents per litre,” said ICMSA dairy chairman Pat McCormack.
Meanwhile, Agriculture Minister Simon Coveney has welcomed EU Agriculture Commissioner Phil Hogan’s move to extend availability of Aids to Private Storage and intervention beyond September 30, but said he has asked the Commission to look at increasing the volumes eligible and the intervention price, to provide a realistic safety net.
Hogan’s measures were also welcomed by IFA dairy chairman Sean O’Leary, as “helpful, but not sufficient”.
He said the Private Storage scheme has been in strong use, especially for butter, helping to hold prices from collapsing to intervention levels.
But low prices were putting enormous pressures on dairy farmers.
Nowhere has farmer reaction to dairy market weakness been more vehement than in Scotland, where Graham’s the Family Dairy are believed to be the first milk buyer in the UK to pay farmers less than 10p per litre for milk. However, it is only for 10% of their milk supply: the A/B pricing formula pays the full price of 23.75p for 90% of milk.
Nevertheless, for dairy farmers everywhere, weak markets mean a disappointing year to follow 2014 — when Irish farmers averaged up to 37.46 c/litre, paid by west Cork’s Barryroe co-op, confirmed last week as the top payer in the Irish Farmers Journal/KPMG Milk Price Review for 2014.
