Co-ops Must Lift August and Year-end Base Milk Prices – Phelan

Speaking today (Wednesday) from the Virginia Dairy Show in County Cavan, IFA National Dairy Committee Chairman Tom Phelan said co-ops had taken fright earlier this summer and been overly conservative in just holding base prices, some making do with temporary “support” payments which could readily be whipped out.  Kerry’s Eamonn Scanlon and Glanbia’s Siobhan Talbot have recently expressed confidence in the market place, borne out by the latest European quotes, despite yesterday’s negative GDT.  This must lead to higher milk prices from August supplies.

“I think it is important to put GDT auctions in context.   The USDA predicts that over 7.5m tonnes of dairy products will be traded globally in the year ending December 2018.  The quantities traded through GDT in 2017 were less than 10% of that,” Mr Phelan said.

“Latest European market trends show drought has moderated volumes from June and helped the prices of most commodities rally this month.  All co-ops, especially those whose base prices have been allowed fall behind, must increase their August base price and be ready to increase it further before year-end as markets allow,” he said.

“The Ornua PPI published in August for July trade was slightly down, but as always lags behind market trends.  In recent weeks, most product prices have rallied.  The EU Milk Market Observatory most recent report (15^th August) shows high butter prices easing slightly, but SMP prices up €80/t ,WMP up €40/t, cheddar cheese by €30/t and whey powder by €20/t.  Altogether, these prices would return 37.5c/l gross for an Irish product mix (or 32.5c/l + VAT, assuming a 5c/l processing cost deduction),” he said.

“Spot prices – the current price for a product without a forward contract – are also up, with Dutch raw milk rising €5.8/100 kgs to €37.8/kg.  Spot quotes for European dairy products are also lifting, with 15^th August quotes up by between 2.6% (butter) and 3.52% (SMP).  Returns before processing costs for SMP/butter, based on the average Dutch, German and French spot quotes on that date, would be 38.82c/l gross, or 33.82c/l + VAT after deduction of 5c/l processing costs,” he added.

“Finally, the newly launched EEX Liquid (Raw) Milk Futures currently suggests October to December prices of over €36-37/100 kg, rising to €40/100 kg next spring,” he said.

“It is clear that reduced production from June due to drought in Europe is impacting market sentiment and dairy prices.  Co-ops must ensure that farmers benefit from this, seen as the impact of weather on feeding costs in particular will hit their 2018 margins hard,” he concluded.