Gdt Cooldown Does Not Change Scope for Continued Milk Price Increases

IFA National Dairy Committee Chairman Sean O’Leary said today’s 3% easing in the GDT weighted average price was not necessarily a bad thing, as it might help avoid global dairy prices overheating.

He said the recovery trend remains solid, with output easing in all regions bar the US, and EU dairy returns up the equivalent of 10 c/l in the last five months. This, he said, should give co-ops, whose boards will be meeting from next week to decide on the September milk price, the confidence to further increase it for this and for the coming months.

“Since mid-July, the GDT index has increased 28%, even allowing for today’s small decrease. This trend is based on lower global milk supplies, and these are also pushing EU dairy commodity prices up in a way which makes it clear that dairy markets are now in full recovery mode,” Mr O’Leary said.

“New Zealand August milk production was back 3%, with a forecast of a 3% decrease for the full 2016/17 season. Milk output in the EU is back on last year for the second month running in July at -1.4%. Within the EU, Germany, France, the UK, and Poland are all producing less milk in recent months than last year. UK supplies appear to have collapsed, with 7% to 8% month-on-month decreases for the last few months. In Ireland and the Netherlands, where production continues to grow, the increase has slowed dramatically, with 1.8% in August for Ireland, and 4.9% in the Netherlands. The US is the exception, with 1.9% increase in August, but a strong US$ and buoyant domestic demand, especially for butter and cheese, is helping keep them from the world market,” he said.

“Demand is also reasonably buoyant, with Chinese dairy imports up 27% for the January to August period, partly due to a disimproving level of self-sufficiency, and good performance in the rest of Asia and South America,” he added.

“Dairy prices have been rising for the last five months. EU Milk Market Observatory data for 25th September indicates a return up 10c/l on early May figures, equivalent to a farm gate milk price of 30 to 31c/l. There is clearly scope for further milk price increases based on improved market returns over the coming months. Co-op boards will be meeting from next week to decide on their September milk price, and they must take account of the intense cash flow pressure which continues on farms, and ensure that every possible cent from improved returns is passed back,” Sean O’Leary concluded.