No futures solution yet in dairy slump

It will be 18 months or so before dairy futures markets become relevant and of value to Irish farmers, say co-ops representatives, responding to media reports that Irish milk processors ignored offers to lock in milk prices at 39c/l for two years.

The reality, according to ICOS, is that the European dairy futures market is in its infancy, and volumes being traded are quite small, although it is hoped dairy futures markets and other such derivatives will eventually offer enormous potential as risk management tools. Commenting on a report which suggested that Irish co-ops declined a possibility to “lock in” fixed milk prices, in order to protect against milk price volatility, an ICOS spokesperson said some industry players have traded small volumes on financial markets, but only as a test and to develop skills.

ICOS supports development of financial risk management tools and will encourage co-ops and farmers to adopt them, when they are ready and fully fit for purpose — but those tools are not yet precise enough to depend on.

Furthermore, the European futures market uses European price quotes to settle contracts, not Irish milk prices, introducing inaccuracy and inefficiency from an Irish point of view.

Meanwhile, the deteriorating dairy market is reflected in Ireland’s reliance on the EU’s subsidised private storage aid, with 6,500 tonnes of the 14,030 tonnes of butter stored, coming from Ireland. These emergency schemes to store butter and skim milk powder (SMP) have cushioned falls in EU milk prices. For SMP, 7,600 tonnes has been stored.

Nevertheless, the situation in the European milk market is becoming dramatically worse, according to the European Milk Board (EMB), which represents 19 dairy farmer groupings across the EU.

Dairies in Belgium have announced they will pay only 24.3c per litre from January, and EMB warns prices in France also will drop to an “unbearable” level.

The worst off at present are the Baltic states, where dairy farmers get only 15.5-16.5 cents a litre.

In the UK, First Milk has announced December prices per litre equivalent to 29c for liquid milk and 30.6c for manufacturing milk.

In 2014, EU prices have fallen from €330 to €200 per 100kg for skim milk powder, and from €410 to €310 for butter.

Also hitting milk prices is a slump of nearly one third so far this year in EU cheese exports to Russia, due to the trade embargo.

EU agriculture commissioner Phil Hogan has said plans are in place to provide subsidies to dairy exporters.

 


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