POSITIVE PROSPECTS
For Irish milk prices in 2019
by Service Dealer Ireland Editor, Liam de Paor
 
Liam de Paor, Service Dealer Ireland Editor

The positive indicators for skim milk powder (SMP) markets have continued into the New Year, the most remarkable probably being the rapid sales of increasingly large tonnages out of intervention at rising prices. A total of 357,345 tonnes have been sold out of intervention in the period from December 2016 to date, leaving only around 22,000t in stock after a whopping 80,242t were sold in early January.


Some 18,514t of skim milk powder (SMP) sold out of EU intervention stocks at the latest tender sale which took place in Mid-January , at a price of €1,585/t with just 4,000t remaining. There are now no Irish SMP stock in the intervention system.


The minimum sales prices have been rising since last July, now practically matching fresh Dutch and German spot quotes for feed grade powder. At €1554, the most recent minimum accepted price was on par with the EU average spot quotes for feed grade powder quoted for 9th January 2019.


Now that intervention stocks have dropped to below their March 2016 level, we can expect to see a continued recovery in SMP prices, and a rebalancing of the butter/powder prices to more “normal” levels. Indeed GDT SMP prices have been rising steeply in the last three auctions – albeit from very low prices – to a level of US$ 2,200 last seen in June 2017.


European spot quotes for food grade SMP have also improved consistently in recent weeks, with Kempten (German), France Agrimer and Dutch PZ quotes now at €1830/tonne with anecdotal trade prices near €1900/t.


Even futures markets are looking good for SMP producers, with latest EEX quotes suggest prices rising above €2000/t by the end of 2019.Average EU market prices also reflect this same trend. In the first week of January 2019, they reached €1730/t.


It is also the improvement in the spot and market prices of SMP which caused the December Ornua Purchase Price Index (PPI) to increase from 104.9 points to 107.5, equivalent to a milk price of 30.55c/l + VAT (32.2c/l incl VAT).


However, lower supplies in the EU, have continued to moderate output growth expectations from the bloc. The EU Commission reports a likely production increase of 0.8% for 2018 over 2017, and predicts only a 0.9% increase in 2019. Their long term prediction is for moderate growth of 0.8% per annum to 2030 as environmental factors become more of a restraint in Europe.


Predictions for global milk output growth for 2019 are also for no more than 1% increase, a significantly lower level than seen through 17/18.The key of course is the supply demand balance, and supplies have trended towards better matching demand growth in recent months.


In its Quarterly Dairy Report published in December, Rabobank predicts “double digit” demand growth from China for dairy products, due largely to excessive production costs restricting domestic output.


Domestic dairy demand in most of the developed world remains solid, especially for butter and cheese which tend to be traded more domestically than on export (Ireland being an exception to this as most of our butter is exported).


Oil revenues for some emerging countries will have suffered in the last few months as crude oil prices went from near $80/barrel to around $55-60 today, and this will undoubtedly play a part in their food import affordability.


The long-term demand outlook remains very positive, with global population and income growth in emerging countries expected to continue to drive dairy demand growth, in the context of more moderate global output growth.


Meanwhile Dairygold is to offer its suppliers a fixed milk price scheme with a base price of 29.9 c/l (excluding VAT), which works out at 31.5c/l plus VAT. The price includes quality milk bonuses (0.65c/l), and is for milk at 3.3% protein and 3.6% butterfat.


Dairygold said this would work out at the equivalent of 35.05c/l when adjusted for 2018 fat and protein averages from suppliers.


The voluntary scheme will run for three years from 1 March 2019 to 30 November 2021. Farmers can choose to fix 5% or 10% of their total milk volumes, based on their 2018 milk supply. The fixed volume selected will apply for the calendar years 2019 to 2021.


The closing date for farmers to sign up is 20 February 2019.

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