34c/l + Vat Realistic for Early Spring Milk

IFA National Dairy Committee Chairman Kevin Kiersey said the 3.1% increase in the latest Fonterra auction average price justified significant producer price increases. Some co-ops have increased February milk prices, with Dairygold lifting their price by 2.5c/l to 31.96c/l + VAT, but IFA would argue in lobbying co-op board members that this was only the first step towards a very realistic 34c/l + VAT for early spring milk.

Mr Kiersey added that some co-ops had more work to do than others to ensure their suppliers receive regionally competitive milk prices.

He said the latest auction confirmed industry analysts’ forecasts that lower supplies, depleting stocks and resuming global buying activity are underpinning dairy product prices which should last for the first half of the year at least.

“All indicators confirm our view: continued firm commodity prices at EU level, and improving global prices, reflect tighter markets with reduced milk supplies, depleted stocks, and now increased buying activity. Our belief, and that of most industry analysts, is that this situation is likely to be sustained for several months,” Mr Kiersey said.

“German milk price analysis institute IFE have published a farm raw milk value for SMP/butter for January of 35c/l after processing costs (for milk at 4% fat), which is coherent with our own calculations. The IDB index for December rose to 111.1 points, its highest level since its inception two years ago, and we expect this to be sustained for the January index,” he added.

“Cheddar cheese, which is a very important part of the national product mix, and especially critical for some co-ops has seen significant price increases in the UK market due to low supplies and low stocks,” he added.

“Most up-to-date (early Feb) average commodity prices reported by the EU Commission would suggest gross returns (before processing costs) of 41c/l for Cheddar cheese and whey powder, and SMP/butter around 39c/l,” he said.

“The outlook for dairy markets is extremely strong at least for the first half of 2013. Co-ops have a unique opportunity early this season to help their suppliers deal with high input bills, while maximising milk supplies to capitalise on strong markets. A strong early spring milk price of at least 34c/l + VAT is not only justified on the basis of market returns, it would also yield positive results for the dairy industry in 2013,” he concluded.