Dairy co-op boards should take the view that current milk price levels will remain sustainable for 2014, says IFA national dairy chairman Sean O’Leary.
The IFA’s Cork-based dairy commentator based his comments on the results of the recent Fonterra auction — the first for February and involving trading contracts to August 2014.
Mr O’Leary said that the weighted average 0.5% price lift was due to robust butter and powder prices for trade up to June, reflecting solid continued global demand for those products.
This upbeat view of the Fonterra figures is echoed by similar readings by ICOS, who described the latest NZ global dairy trade auction as “holding steady”.
Irish stockbroker group Davy said the 0.5% rise in the GDT index was driven, in the main, by strong WMP pricing, which rose by 1.4% versus the previous event.
WMP, along with SMP, comprise the majority of volumes traded at the auction. Davy suggested this demand will remain strong.
“Another positive result at the latest GDT auction comes as no surprise,” said Davy food and beverage sector analyst Declan Morrissey. “Global dairy markets remain buoyant, mainly driven by robust demand for WMP and SMP.
“The all-products’ price index at the latest GDT auction rose by 0.5% on the previous event a fortnight ago, continuing the upward momentum in global dairy product prices.”
Sean O’Leary said that, at a time when co-op boards will be meeting to review milk prices for January and the year ahead, the GDT rise should give them confidence that current milk price levels are well sustainable for 2014.
“Over the last few auctions, the butter price has been increasing steadily. This is particularly welcome, as it is reducing significantly the gap with higher, but now easing, EU prices, auguring better in terms of future butter price evolution when the EU peak begins,” Mr O’Leary said.
“When it comes to powder, there is no such price gap, and EU exporters, including Ireland, are benefiting from the rises seen in global and average EU SMP prices (€3290/t on 26th January — that’s 23% higher than 12 months ago).”
The IFA commentator said Fonterra is reported to have significantly increased volumes of powder available this time around, and still the market absorbed it at a 1.4% higher (WMP) or unchanged (SMP) price.
“Some of the commodity prices eased somewhat, with cheddar, rennet casein and milk protein concentrates between 3% and 4% cheaper than at the last auction,” he said. “However, the outlook for the commodities most traded through the auction remains strong, as global demand stays solid, even in the face of fast rising world dairy output.
“I believe co-op boards, ought to give farmers a confidence boost by declaring clearly that they will hold 2014 milk prices,” he concluded.
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