Global milk volumes are well back, and unlikely to recover fast enough in 2017 to really challenge the market balance, and therefore dairy and milk price levels.
With farmers still struggling to deal with the consequences of months of depressed cash flow, it is vital that every cent possible be passed back so that they can look forward to a spring peak with sustainable milk prices. Current and forecast trends suggest co-ops can have the confidence to do just that.
The main European milk purchasers have increased milk prices by more than the average 5.5c/l passed back by Irish co-ops between July and November.
Arla and Friesland Campina, two of the largest milk purchasers in Europe, both co-operatives, have since September increased their respective prices by 7.25c/kg to just under 32c/kg, and 12.5c/kg to 37.5c/kg.
This reflected significant increases in EU dairy prices since last May. The strongest performers were butter (+69% since May), whey powder (+65%) and whole milk powder (+56%).
Even SMP, whose price recovery has been slowed by the intervention overhang, has seen milk price increases of 24% over the period.
Returns from average EU dairy commodity prices, before processing costs, have begun December at levels of around 36-37c/l gross – equivalent to farm gate prices of around 33c/l incl VAT.
Meanwhile, Ornua predicted at the December meeting of the Dairy Forum that prices at 3.3%p and 3.6%f for 2017 would be up to 33 c/l, setting the scene for further milk price increases.
Also, the milk price recovery is not just a European phenomenon either — with four consecutive positive GDT auctions to December.
Latest GDT prices (20th December) for SMP $2621 and butter $4290 would, at current exchange rates, be equivalent to an Irish farmgate price of over 37c/l including VAT.
The main reason for the market improvement is the continued slowdown of global supplies, which FCStone international estimate are now only growing by 0.6%.
EU supplies for the April to October period were down by just under 1%, and down 3.5% for October, according to Eurostat.
French milk collections were down 7.7% in October and 4.9% down for the season to date. October milk supplies in Italy were 2% back on the same month last year, while in Spain they were 1% back for the same month.
Early December German output was 4.7% down compared to the same period last year. Britain’s supplies for the April to September period were 6.5% down, with daily deliveries for the first two weeks of December back by 6.7%.
Outside of Europe, November NZ supplies were down 4.5%, affected by poor summer weather and some impact on supply collection from the recent earthquake.
In Australia, October supplies were 11.4% back, while the season to date was back 10.3%. Only the USA continue on expansionary mode, with October output 2.5% above the same month last year.
It is always important to keep a cautious outlook in the context of what we know to be a volatile market.
There are real concerns as to the impact on global demand of Brexit, the trading policies of the new US Trump administration and the affordability of higher dairy prices in emerging countries, especially in the context of relatively lower (though rising) oil prices.
Demand has been strong throughout 2016, both in developed and emerging countries. We are now in the stretch of the year which includes some of the most positive annual events for dairy demand: Thanksgiving, Christmas, New Year, Easter and Ramadan.
Also, we know that supplies of milk globally are unlikely to increase dramatically in response to improved prices in the coming months, because on-farm losses over nearly three years, massive cow culls and weather events affecting this year’s NZ peak have impacted the structural ability of global dairy farming to respond any faster.
This must give our own co-ops the conviction that they can pass back market return improvements in the coming months, so that we can breach the 30c/l barrier by year end, and reach sustainable and profitable milk prices before spring peak.
This is absolutely essential to help farmers return to the profitability and positive cash flow situation without which the sector cannot realise its full potential.
Source: IrishExaminer
Link: http://www.irishexaminer.com/business/dairy-co-ops-have-very-real-scope-to-break-30cpl-barrier-438283.html