Mexico may emerge as EU dairy shopper

Cooling trade relations with the US will make the EU’s mountain of stored dairy products increasingly attractive to Mexico, according to dairy trade analysts at Rabobank.

The sale of the EU’s intervention stocks is equivalent to about one month of global dairy trade, consisting of skim milk powder and other products made from 4.5m tonnes of milk.

Since December, in four attempts to sell some of its 354,000 tonnes of skim milk powder, the EU got rid of only 40 tonnes. This dairy product overhang casts a shadow on world dairy markets, and may take years to sell off.

But political disruption of Mexico’s trading with the US brings a big new customer into the world dairy trade picture.

Although the US is the only big dairy area still increasing production, at 2% per year, the strong dollar, the economic slowdown in China, its deteriorating relations with Mexico, and high global dairy inventories are all challenging American dairy exporters.

According to Rabobank analysts, the world’s second largest dairy importer, Russia, may become a big buyer from the US.

The Russian government has banned EU food imports since 2014.

And Mexico turning to the EU instead for dairy products would be another fortunate outcome for the EU.

Meanwhile, prices at Tuesday’s GlobalDairyTrade auction have moved lower, down 3.2% on average.

But milk prices continue to edge upwards in Ireland, with Dairygold Co-op increasing the price for milk supplied in January by 1c, to 31.5c per litre, including VAT and a 0.5c quality bonus.

In another bit of good news for dairy farmers, the Ornua Board has decided against re-introducing the Ornua milk levy.

It was suspended in May, 2016, until the Ornua Purchase Price Index would return to 103 (equivalent to a 30.5c milk price, including VAT) for three consecutive months.

The Index is now at 105.4, but Ornua has decided to suspend the milk levy until the autumn at least.

This is worth about €350 per farmer per year, on average.

IFA National Dairy Committee Chairman Sean O’Leary welcomed the decision to suspend the 0.14c/l levy for a further period.

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