ICOS figures show that nearly half the increased milk production in the EU has gone into intervention or private storage aid schemes.
In recent weeks, sales to EU intervention stores escalated, as EU wholesale milk powder prices traded below the intervention level.
This trend may escalate, with EU milk production forecast to expand 1.9% in the first half of this year, likely to result in an additional 9% of exportable dairy surplus, if consumption grows only 0.7%.
According to ICOS, Eurex quotes for butter and skim milk powder equate to milk prices between 20c and 21c per litre. In Ireland, the Ornua Purchase Price Index weakened to a five-year low of 86.6 in December, suggesting a milk value about 5c greater than the commodity markets are currently returning.
Irish dairy farmers will benefit in April or May from direct payment to them of the additional Ornua cash bonus of €15m from the disposal of DPI Specialty Foods.
A spokesperson at Glanbia said it would be worth more than €3m to the group’s milk suppliers. It will be worth about 0.5c/litre of the milk supplied to Ornua member co-ops, said ICMSA dairy chairman Gerald Quain.
Meanwhile, prices at the GlobalDairyTrade auction fell 1.4% yesterday, with news of the weakest Chinese economic growth in 25 years adding to market uncertainty. The effect of Chinese downturn on demand is an unwanted new worry for the dairy industry. However, the US Department of Agriculture recently predicted Chinese whole milk powder imports will rise 14.3% in 2016.
Dairy markets will remain weak until consumption grows or supply growth eases significantly. But New Zealand production has held at higher than expected levels, with collections by Fonterra down only 4.1%. Fonterra had forecast a 6% decrease. Australian production is down 5%.
According to ICMSA President John Comer, the milk price to farmers across the EU has fallen by 30-40%, but the milk price paid by EU consumers fell by an average of only 2%.
He said food retail corporations are left unregulated by either governments or the EU Commission, given a ‘win-win’ licence.
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