Milk drying up ahead of scheme to cut supply

EU butter price lifting as the milk supply shrinks

Farmers wishing to take part in the EU Milk Reduction Scheme later this year will have to specify in their applications how much they will reduce milk deliveries, compared to 12 months previously.

According to ICOS, they can only apply for one of the four optional three-month tranches (which are October, November, and December, 2016; November, December, and January, 2017; December, January, and February, 2017; or January, February, and March, 2017).

In the €150m EU-wide, voluntary scheme, funding will be available on a first come, first served basis.

The measure will close once the volume covered in the scheme is filled, which is expected to be 1.1 billion litres, resulting in a payment per litre just below 14c/l.

The specifics of the scheme will be finalised on August 25 at an EU milk market management committee meeting in Brussels.

ICOS sources say it is arguable that the scheme will have no additional effect on milk supply, because farmers were going to reduce deliveries anyway, but will now apply for the scheme and will hope for the best with regard to any potential payment they get for their already planned reduction.

According to ICOS, after two years of markets in the doldrums (cushioned in Ireland by farmer support from ICOS member dairy co-ops), and farmers receiving prices well below the cost of production in most countries, the EU milk supply had finally begun to pull back, even before the the EU Milk Reduction Scheme was announced as part of the mid-July package of support measures worth €500 million.

There are indications that the UK July milk supply was 10% back on the previous year, and deliveries are 1.5-4% back across Germany, France, Poland and Denmark.

As a result, EU milk supply could fall back as much as 2%, before the Milk Reduction Scheme to take out 1.1 bn litres (or about 0.6%) takes effect.

ICOS sources say falling milk deliveries have already helped to lift the EU butter price to €3,342, almost €900 above its March trough.

“This clearly demonstrates that developed European and world markets are capable of absorbing our increased production levels”, said a spokesperson for the co-ops organisation.

Skim milk powder prices have recovered to €1,770, around €150 above their March weak point.

Globally, the milk supply hadn’t picked up in New Zealand in June, and was back almost 9% in Australia.

The US supply was up by 1.5% for June, but growth was slowing.

The May supply was back 21% in Argentina.

On the €350m aid portion of the EU support package, which will also be finalised at EU level on August 25, ICOS sources said the €11.1m allocation for Ireland (which could be doubled to €22.2m from national exchequer funds), will be available to other farming sectors, not just dairy farmers, and it is apparent that the Government will not be able to distribute this funding by way of a flat-rate payment.


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