Teagasc economists say the average sized Irish dairy farm could see its income halved in 2016, and high cost dairy farms will be loss-making.
Although dairy farmers are on course to increase Irish milk production by 7% in 2016, profitability will fall by 60%-80% compared to 2015.
The grim profits forecast came even as prices increased by 6.6% on Tuesday in the Global Dairy Trade auction, and European spot market milk prices also offered evidence of dairy market recovery.
In their mid-year economic assessment of farm income prospects for 2016, Teagasc economists said the imbalance in dairy supply and demand will remain a problem in the short term.
However, ANZ Bank New Zealand, the country’s bigger lender, warned dairy farmers down under that they are unlikely to see positive cash flow for another 18 months.
Teagasc economist Trevor Donnellan said: “The protracted duration of the current dairy commodity price slump means that this period of low milk prices has persisted considerably longer than in the crisis of 2009.
“While global dairy commodity prices are now showing some signs of a recovery, it will be of little benefit to Irish milk prices in the current season.
“A sharp drop in Irish dairy farm incomes in 2016 is now inevitable from the near record levels of incomes in 2014 and 2015.”
According to Teagasc, aggregate dairy feed sales to the end of May were running about 6% ahead of the same period in 2015.
However, this compares with their estimated 10% increase in dairy cow numbers, in mid-2016 compared to mid-2015.
ICMSA’s Dairy Committee Chairperson, Gerald Quain, said Irish farmers are now getting only 1-2 cents per litre more than New Zealand suppliers.
He said farmers will think long and hard about producing milk in the last three months of 2016, now that the option of an EU voluntary milk reduction scheme can cover their overhead costs for those months.
Referring to the EU’s €150m offer of 14c per litre for milk not produced from October to December (compared to the same 2015 period). The 14c payment is expected to be made in late January or early February.
Mr Quain said that if co-ops want milk supplied in the last quarter of 2016, they have to respond with higher prices.
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