Back to rollercoaster milk markets

Irish co-ops were paying some of the EU's highest prices from late 2021 to the autumn of 2022, but are now slumping to the foot of the league table.

The bad old days of milk price volatility have returned, summed up by Irish co-ops paying some of the EU's highest prices from late 2021 to the autumn of 2022, but now slumping to the foot of the league table.

Meanwhile, farmers across the EU will hope that a recent market stabilisation marked the bottom of the price cycle.

In 12 months, Kerry Agribusiness, Dairygold, and Tirlán fell from 1-2-3 in the EDF-ZuivelNL International Milk Price Comparison to be the backmarkers (respectively 15th, 14th, and 13th) in April 2023.

The price comparison produced by the European Dairy Farmers and the ZuivelNL (Dutch Federation of Agriculture and Horticulture and the Dutch Dairy Organisation) shows that Irish prices fell much faster than at the other 12 milk processors whose prices are listed.

In 12 months, the three Irish prices fell from over €50 over 100kg of milk to Tirlán's €41.22, Dairygold's €40.66, and Kerry Agribusiness's €38.67. However, the average milk price of the 15 processors listed was €0.03 higher than 12 months previously.

The milk price of Capsa Food in Spain has increased from €42.84 to €54.33 in the past year. Valio in Finland now pays €53.25 compared to €43.80 in April 2022. There's an €8 increase at Sodiaal in France over 12 months and the Savencia price in Normandy, France, has gained about €2 per 100kg, while Danone in France paid about €7 more in April this year.

Lactalis in France, now the world's biggest milk processor, paid €45.10 in April, up from €42.15 a year previously. Arla Foods of Denmark paid €45.18 last April, compared to only €44.66 12 months previously.

UK dairy farmers are enjoying a €2 increase at Saputo Dairy UK (Dairy Crest). However, the FrieslandCampina (Netherlands) price fell from €47.07 to €43.11 in 12 months.

In the international section of the milk price comparison, suppliers to Emmi in Switzerland are sitting pretty, paying €69.34 in April 2023, compared to €63.87 12 months previously.

Prices are equally volatile on the other side of the world, with suppliers to Fonterra in New Zealand getting an April price of €35.26, down from €44.24 12 months previously. And the price for the United States Class 3 milk has fallen to €42.45 from €56.12.

Meanwhile, the three Irish processors have returned to their habitual pre-2021 position of propping up the list.

What are the prospects for milk price increases? According to Liam McCabe, dairy sector manager at Bord Bia, the record prices which took Irish dairy exports to new highs in 2022 were driven more by lack of supply than by demand.

Prices picked up in mid-year after reduced milk output in the first half of 2022 in the EU, New Zealand, and the US. This stemmed from farmers culling lower-producing cows in the face of rapidly escalated costs.

This trend left international buyers concerned about sourcing enough dairy commodities, and they went on a buying spree to fill their supply lines, which drove prices to unprecedented levels.

With only 7% of the world's dairy production being exported, these trends can quickly shift the balance of global supply and demand to the advantage of the five main exporting regions, the EU, New Zealand, the US, Argentina and Australia.

After mid-year, farmers tried to capitalise on the rising prices by increasing milk production. This can be done quicker in some competing regions than here in Ireland because of the grass-based system here. The increasing production shifted the balance of global supply and demand again, in the second half of 2022.

Now, according to Mr McCabe, commodity prices have fallen by 40-60% from the 2022 peak. With winter production low in Ireland, that was not reflected much in farm-level prices. But when spring production ramped up here, the slump found its way into the milk cheques.

Now input prices remain high, but milk prices have dropped off dramatically.

In 2022, input prices increased dramatically, but the milk price kept pace, setting its own records.

As the market advantage swung from exporters to buyers, China's role as the importer of about 20% of all dairy exports was a major factor.

Their imports had fallen back about 20% in 2022 as they grappled with Covid-19 lockdowns. Chinese demand has not yet recovered, but there have been green shoots in the form of some market stabilisation in recent weeks, said Mr McCabe, when interviewed for the Teagasc Let's Talk Dairy podcast. He said prices may have hit the bottom of the current cycle.

However, the summer months and holiday season are usually a quiet time for dairy markets. And how soon milk prices at the farmgate benefit from market stabilisation will depend on processors' contracts with buyers and forward selling.

Meanwhile, milk production trends will continue to influence markets. For example, the supply in New Zealand has recovered to only 0.8% behind the 2021-22 level. The EU milk supply increased by 0.6% year-on-year in the first quarter of 2023. However, with low milk prices, very positive supply trends cannot be expected to continue. In fact, dairy cow slaughtering has already picked up in the US and New Zealand.

Asked by a podcast listener where the milk price will go in the coming months, Mr McCabe said no one knows for sure, but there has been price stabilisation. "We would hope that global commodity prices have hit bottom at this point".

"As we move towards the end of the year, we would hope that prices begin to move upwards again".