Continued Improvements in Dairy Market Indices Show Up Overly Conservative Co-ops

IFA National Dairy Committee Chairman Sean O’Leary has said co-ops have been too conservative in setting the September milk price. He pointed to this week’s GDT 1.4% price lift, a total 11.2 points increase in the Ornua PPI since July, an 11c/l rise in returns in the last six months from the EU average dairy prices quoted weekly by the EU MMO, and spot dairy quotes exceeding €4,200 for butter and €2,100 for SMP.

Mr O’Leary said co-ops need to show greater confidence in what is a real market recovery, and plan out a price strategy that would deliver milk prices of at least 30 c/l by spring to support their suppliers’ confidence as much as their cash flow.

“Most co-ops have by now decided on their September milk price, and all of those have added just 1c/l to their pay-out, to a total of between 25.5 and 26c/l incl. VAT. This is between 1.1c/l and 0.6c/l behind the Ornua PPI for September, which is equivalent to 26.6c/l including VAT, and it is depriving farmers of a possible cash flow fillip in what is for most of them the last significant milk production month of the year,” Mr O’Leary said.

“The failure by most co-ops to deliver at least 2c/l on September milk is very disappointing. For most farmers, this is the last significant milk production month of the year, particularly in those co-ops which operate a 4/5 week cycle,” he added.

“It is disappointing that co-ops, maybe made complacent by a positive farming Budget 2017, and by the prospect of the Basic Payment being made to farmers from this week, undershot what was a realistic price increase,” he said.

“Co-ops must also remember that 4,447 farmers applied for the first phase of the EU production reduction scheme – and 556 for the very much reduced second – for an overall production reduction of a little over 72m litres in Ireland alone over the October to January period. These farmers will of course weigh the pros and cons of going through with the reduction, and milk price will be the main consideration,” he said.

“All co-ops must now show a little more belief in what is a sustainable recovery in global dairy markets, and plan out a milk price programme for the next few months which will ensure that farmers can return to positive margins by spring, and normalise their cash flow situation as early as possible in 2017,” Sean O’Leary concluded.