Global Dairy Trade auction trend defies expectations

Dairy product prices in Tuesday’s Global Dairy Trade auction defied market expectations, with the average price index across dairy products rising 2.1%.

It was only the second advance in the seven auctions held so far in 2016, and even skim milk powder prices advanced slightly, although market analysts thought a further price cut was certain.

Skim milk powder and butter, mostly going into intervention, are the main products for the still growing milk production in Europe.

The skim milk powder price gained 0.1%, but butter prices fell 2%, hitting their lowest levels since last November, and butter milk powder prices fell 8.2% to their lowest level for at least five years.

Meanwhile, the European Commission has indicated it could start adopting emergency rules on voluntary milk supply management by mid-April. 

Member states will be allowed fund producer organisations, inter-branch organisations and co-ops in the dairy (and pigmeat) sector to control supply among their members on a voluntary basis.

The measure is voluntary and limited and of a temporary nature, rather than a return to milk quotas.

It is not supported by Ireland, but may find favour in other member states, especially after Europe’s milk output took another upwards surge in January— up 5.6% year-on-year, the highest increase of any month in the past year (led by Luxembourg and Ireland, with near 20% increases).

The new scheme may be welcomed by groups such as the Milchwerke Berchtesgadener dairy co-op in Germany, which has asked its members to stop producing additional unwanted milk, and to feed raw milk to calves instead of milk replacer.

The co-op warned members it will have to sell extra milk on the spot market for 15 cents per kg. It warned that deliveries from members had increased by 11%, pushing the dairy “close to collapse”. The co-op in southern Germany, near the Austrian border, takes milk from more than 700 mountain farmers.

Funded supply management is also likely to be welcomed by the third largest dairy company in Austria, the Gmundner Milch dairy co-op.

Their 2,800 suppliers get a bigger price if they supply less milk per month than they did in 2015.

And a penalty for producing more than their 2015 production is double the incentive for producing less.

The co-op processes about 900,000 litres of milk per day.

The need for supply control across the EU is also reflected in the north of Schleswig-Holstein in Germany, where the Cremilk dairy company aims to cut 15 million kg off their milk supply by offering farmers a bonus until May of about 17c/kg to deliver less milk, stop delivering milk altogether, or deliver it to another company.

There may yet also be a welcome for voluntary milk supply management in the UK, where there are some warnings that the 3% rise in production may leave insufficient processing capacity to handle the peak milk supply.

Meanwhile, the current supply at some Irish co-ops, for February and the year to date, is 33-34% ahead of last year.

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