Predictions that milk prices will weaken for the next six to eight months are a sober reminder to dairy farmers that their expansion plans must be robust enough to withstand major shocks.
Milk quotas stopped many farmers’ plans in 1984; 30 years later, farmers should consider what could interfere with their plans for the era after milk quotas disappear next April.
Teagasc experts point out that other constraints will replace quotas — such as the availability of land, labour or capital, lower milk prices, higher interest rates, sub-optimal performance, and animal health issues.
There could be shocks on the upside also; indeed, Agriculture Minister Simon Coveney expects milk prices to strengthen again after six to eight months down the road, but that might depend on weather patterns that will result in crop failures, and allow grain and milk prices to increase again. He sees a a direct correlation between cheap grain and milk prices weakening, and says that is happening at the moment.
When grain is expensive, Ireland’s grass-based milk production system is very price competitive; when grain is cheap, Ireland finds it more of a challenge.
German farmers say their cost of milk production in April was 45.95 cent/kg, while the farm gate milk price dropped to 40.60 c/kg. That contrast shows now how Irish dairy farmers have insulated themselves from milk price volatility with low costs — and why the removal of quotas is not expected to greatly boost EU milk production .
Even on borrowed money, if expansion plans are based on 28-30 cent a litre, Irish farmers can hope to ride out milk market volatility.
The notion that milk prices will stay stronger if Ireland produces less has been dismissed. It is understandable farmers might be prone to that kind of thinking, due to what they see happening in the beef industry.
There, it seems that if more than 30,000 animals a week go into the factories, the price weakens.
Our dairy and beef products are equally dependent on sales on overseas markets.
But milk is different, says Mr Coveney — and beef farmers would love to know why it is different. Is it because of a better premium brand image for our dairy products? Mr Coveney says we are a small player in milk, and would produce less than the US state of Wisconsin, even if we double our milk output.
In beef, we can claim to be the fifth largest net exporter of beef in the world; could our dairy industry perform as badly for farmers as our beef industry, if we ever get near New Zealand’s position as the world’s largest exporter of dairy commodities, with one third of the international dairy trade?
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