Low prices add to uncertainty for post-quota dairy industry

Speaking to a big dairy farmer this week, talk inevitably turned to prices and what a difference a year makes. The gap between the high and low of what his milk price had been was the best part of 10 pence a litre. Scale that up over two million litres plus and the fall in revenues underlines why farm commissioner, Phil Hogan, was so wrong when he denied that the dairy industry was in crisis. As milk quotas come to an end after 30 years, however, those low prices might have a positive benefit by discouraging an increase in production in countries where production has been reined in by quotas.

After the bruising farmers have taken for the best part of a year, the industry was hoping that global markets had bottomed out and prices would improve. That made the recent GDT (Global Dairy Trade) auction result in New Zealand a major blow. This is the benchmark price for dairy commodities, and after two successive increases, each of around 10%, this fell back to a modest 1.1% increase.
This raises concerns that the fragile recovery might have already run out of the steam it needs. The hope was that drought in New Zealand and rising prices would convince buyers they needed to avoid being caught on a rising market with inadequate stocks. It now seems, however, that stock levels are higher than thought, and buyers have already factored in a fall in New Zealand milk output because of that drought. To make matters worse, the price of whole milk powder dipped at that New Zealand auction, albeit by a modest 1%. This is not what most observers expected in the final weeks of the milk quota regime – and hopes of a steady recovery in prices now look less certain than a few weeks ago when the GDT began to rise.

If you are a follower of trends in dairy markets, you could do worse than follow the EU’s Milk Market Observatory (MMO) results. The MMO was set up after the last slump in dairy prices during 2012 to create more transparency and ensure that as many people as possible had access to information about European and global trends. It has worked reasonably well, but the one big criticism is that the figures are not as current as they should be. That is something that needs to be corrected, but in the information age it should not be beyond the Commission to focus on speed rather than 110% accuracy.

Milk production is falling in Europe, with the first quarter of the year set to be down by around 3.5% on last year. Three big players – Ireland, Germany and the Netherlands – have been struggling to get milk production down because they are facing big superlevy bills.

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