Milk processors have taken the first step to create a milk futures market for Irish dairy farmers, by developing a milk price index for Ireland.
Agriculture Minister Michael Creed welcomed their initiative at this week’s dairy forum, where he said mitigating dairy price volatility is the main challenge.
Since May 2014, Arrabawn, Aurivo, Dairygold, Kerry, North Cork, Tipperary, Carbery, Ornua, and FC Stone have been working on a milk price index, which will be unveiled in July or August.
The co-ops say milk futures trading could halve milk price volatility for dairy farmers throughout Europe, allowing them to sell their milk through future milk price contracts.
The cost of trading milk futures will be 0.15-0.30cpl.
Irish coops will co-ordinate the trades for their dairy farmer members, and manage the financial exchange requirements, at least initially when futures markets are put in place.
Fixed price and margin contracts, futures markets and access to increasingly flexible forms of credits are all part of the toolkit required to combat milk price volatility, said Mr Creed.
At the dairy forum, ICMSA continued its call for tools that allow for capping of milk production volume in times of crises, with the EU providing the necessary financial means for cutting milk volumes in all 28 member states.
Meanwhile, IFA National Dairy Chairman Sean O’Leary welcomed the early decision by Drinagh Co-op, consistently among the top payers, to hold their May milk price and commit to this price to year end.
The Drinagh and Lisavaird co-ops have led the support for dairy farmers, with Dairygold also holding the May price.
In the case of Lisavaird, which absorbed a 0.5 cent per litre Carbery milk price cut, and passed on a 2 cpl Ornua bonus, the variable base price for May at 3.6% butterfat and 3.3% protein remains at 25.56 cpl, including SCC bonus and VAT (averages for 3.83% butterfat and 3.47% protein are 27.08c variable price, or fixed price options of 36.81c or 34.16c.
However, Glanbia and Lakeland were among co-ops to cut May prices.
The market background is global milk production slowing due to poor weather, low milk prices and rising feed costs, said Ornua market analysts at this week’s dairy forum, which included farm organisations, co-ops and processors, the Department of Agriculture and its agencies, and the banks.
Demand was solid and exports have performed well, with new markets replacing China and Russia. However, the EU’s first quarter 4% year-on-year export growth to April compares with an EU milk flow increase of 5.8%.
Intervention has taken products equivalent to 2.5bn litres of milk off the EU market. Markets have improved but from very low levels, a continued milk supply reduction was needed for market recovery, said Ornua’s analysts.
Rising global grain prices (soya at a two-year high and maize at a one-year high in the US), early 2016 floods in some milk producing countries (including the EU and Argentina), and increased culling, all tend to reduce milk production, and the forecast high La Nina temperatures later this summer were also positives for market recovery, due to impact on milk production.
Price rises for commodities such as oil, ores, cotton, grain and vegetable oil have helped emerging countries buy dairy products, and increased costs for intensive, high input, milk production systems.
It was confirmed at the Dairy Forum that a ‘Cash Flow & Financial Management on Dairy Farms’ booklet will issue to all dairy farmers shortly from their co-ops as part of a programme of cash flow and financial management training and advice.
IFA’s Sean O’Leary welcomed the cash flow help for farmers, but said it was crucial for Agriculture Minister Michael Creed to deliver low-cost cash flow funding, using the recent EU state aid concession.
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