Ireland’s 13% milk increase in the spotlight
“Dairy farmers in Europe are receiving above-market prices for milk, due to processors overpaying for milk, as farmers adapt to the removal of quotas and find a new sustainable farm gate price,” said Matt O’Regan, chairman of the Westland dairy co-op in New Zealand, as he announced a lower milk price forecast.
EU milk deliveries in the first 11 months of 2015 were 2.2% higher than in the same period in 2014, and production in November alone was up 5.5%.
But Ireland’s contribution was eye-catching, with data from the EU’s Milk Market Observatory showing January-to-November inclusive production here streaking 13% ahead of the previous year, leading the EU charge, followed by Lithuania ahead 8%, Belgium up 6.3%, and the Netherlands up 6%.
Important dairy countries such as Denmark, the UK, and Poland have increased supply about 2.2%. German and Spanish supply increased about 1.75%, French supplies are marginally up, Italian milk production fell about 1%.
In contrast, New Zealand milk volumes are estimated to be 4% lower this season.
The huge Fonterra co-op cut its milk price forecasts 10%, to a seven-year low, and became the second New Zealand dairy group this week to blame the EU supply increase for dragging down global markets.
Theo Spierings, the Fonterra chief executive, predicted dairy markets will improve later in 2016, but said that largely depends on a downward correction in EU supply, in response to lower prices.
Fonterra chairman John Wilson said, “Although New Zealand farmers have responded to lower global prices by reducing supply, that has yet to happen in other regions, including Europe, where milk volumes have continued to increase.”
The latest Fonterra price forecast is about 23% below the average break-even point for most of its suppliers.
DairyNZ chief executive Tim Mackle warned farmers to brace themselves for a reduction in dairy revenues of about $800 million (€600m), or $67,000 (€40,000) less in cash revenue for the average farm.
He said, “The issues creating the soft prices are supply related. Europe is well ahead on production in the last three months.”
“Farmers will be working extremely hard in their businesses and that can affect health and wellbeing.
“Many will have to pick up extra work on their farms. Some will be looking for off-farm income opportunities.
“They will be looking at all their options and banks will be joining in those conversations,” he said.
New Zealand dairy farmers’ fears only increased after this week’s GlobalDairyTrade auction, where whole milk powder prices (which play a key role in determining New Zealand milk prices) slumped 10.4%, to one of the lowest prices in five years, with the average dairy product price dropping 7.4%.
Slim milk powder prices, of more interest to the EU, fell 2.2%.
