Much feared dairy industry volatility is hurting farmers around the world.
New Zealand Reserve Bank governor Graeme Wheeler says more than 35% of their dairy farmers will operate at a loss, if their current milk price forecast is accurate.
With New Zealand dairy farm debts at €22.54 billion, and about 30% of that concentrated among the most indebted 10%, farmers down under badly need an upturn in the milk market.
Things are just as bad on this side of the world.
The average UK milk producer is looking at barely making a net profit at the moment. Significant volumes of “distressed” (not contracted) milk are trading at ridiculous prices, and some skim milk is being dumped.
Friesland Campina, one of the most advanced dairy companies in the EU, will pay a May milk price equivalent to 26.5c per litre, at 3.6% fat and 3.3% protein.
So Irish farmers must tighten their belts to get through the market storm.
They would do well to heed the advice of ICOS Dairy Policy Executive TJ Flanagan, to participate in their co-op structures, and actively trade with them — because it is Ireland’s co-op dairy industry that is insulating our farmers from the chill winds of a global dairy downturn.
The difference in Ireland is industry domination by co-ops and “co-op gene pool” companies, committed to their suppliers and to the industry.
Leading the way is Glanbia, buyer of 30% of Irish-produced milk. Glanbia Co-op has pledged to continue supporting members, holding the manufacturing milk price for April supplies at 30.5 cent per litre, offsetting the Glanbia Ingredients Ireland (GII) base milk price reduction for April by 1c/l, to 28.5 cpl, reflecting current weakness in global dairy markets.
The co-op has pledged to utilise its resources to maintain milk price at 30.5c/l for March, April and May (in the absence of any significant unforeseen circumstances).
Co-op Chairman Liam Herlihy said: “While dairy markets remain weak, the strength of the Glanbia model allows us to support our dairy farmers during these high volume milk supply months”.
Co-op members also voted last week in favour of a package of proposals which will make release about €238 million of the value of the Society to them at a time of significant expansion and investment in the Irish dairy industry.
It is the co-op ownership structure and investment strategy that has relatively quickly transformed the Irish industry from its low-tech predecessor, which depended on intervention markets, paying poor milk prices.
Co-ops, including Ornua have invested heavily and wisely in value-added products and routes to market, to such an extent that the milk price being paid this spring is significantly ahead of our major European competitors.
And huge recent investments, aided by Government agencies, have opened the door to Irish farmers to produce more milk, now that EU quotas have been dismantled. In contrast, UK and French farmers have been told that their processors don’t want any more milk.
Low cost dairy farming is another essential ingredient of the Irish industry, making it the envy of other EU countries. Co-operation and grass can continue to insulate the Irish dairy farmer against troughs in the volatility curve.
According to ICOS, representing the co-ops, there is downward pressure on global milk supplies due to weaker prices, and buyers appear to be standing off the market, holding out for bargains.
The weaker prices will restrict post-quota production in the EU, major dairy countries like France and Germany are reducing supplies. The ICOS prediction is that as summer moves on, and grass gets scarcer across the EU, farmers will not buy concentrates to maintain production.
It remains to be seen how long it will take dairy product buyers to realise this, and to start to take cover for their requirements, according to ICOS. And the high EU level of skim milk powder stocks needs to be sold off, for markets to pick up.
Long-term prospects for dairy prices are good, according to Rabobank analysts, who report market indicators emerging which would lead to reduced global supply growth and ultimately a recovery in prices.
Hopefully that is just not wishful thinking in Rabobank, which is the third largest rural lender in New Zealand, now so vulnerable to a dairy downturn.
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