June 8, 2012

 

Dairy farmers urge co-ops to maintain milk prices

 

 

In order to retain current milk prices on foot of a huge upturn in price, dairy farmers are urging and contacting co-ops Thursday (June 7) at Fonterra dairy auction Wednesday (June 6).

 

Fonterra's Global Dairy Trade-Trade Weighted Index, which covers 30 dairy products and contract periods, Wednesday (June 6), unveiled a 13.5% average rise in dairy prices. Fonterra's butter oil (or 'AMF') price was up 24.4%, while skimmed milk was up 21.3%.

 

The upturn comes after two months of falling prices on New Zealand-based Fonterra's global index. Those two negative months also coincided with the annual results season for Irish dairy co-ops, each of which has predicted that milk prices will fall by 20-25% during 2012.

 

Throughout the past two months, IFA national dairy committee chairman Kevin Kiersey has been urging Irish co-ops to hold their fire before rushing to cut the price they're paying farmers for milk, which varies from US$0.28 per litre to 33cpl, depending on fat content and other local priorities and regional agreements.

 

"We haven't any response back from the co-ops yet, but we plan to talk to board members from around the different regions. Our reading of this Fonterra index is that each dairy co-op should now re-examine its own plans in light of the fact that falling global commodity prices may now have bottomed out," Kiersey said.

 

"They may now find that they don't need to drop their milk prices, as they had been forecasting. These have been a difficult few weeks for dairy farmers, with increasing input costs and challenging weather. This is a very significant price rise, and it signals a very welcome relief for dairy farmers."

 

Overall, the Fonterra index showed a EUR2,320 (US$2,905) per tonne increase on the price paid for dairy products. The largest price increase was in anhydrous milk fat, up 24.4%. Skim and milk powder (SMP) also posted significant rises at 21.3% up, along with rennet casein.

 

The index, which hit a near four-year peak in Mar 2011, has fallen 27.5% over the past 12 months. While some products on the index differ from Ireland's basket of products, the auction is viewed as a useful yardstick for the likely impact of global demand on Irish prices.

 

IFA president John Bryan said that the 13.5% average price increase was very strong evidence that, after signs of recovery on EU dairy commodity markets, world dairy markets were now also starting to pick up.

 

Bryan said "Ireland is particularly well placed to benefit from the growing recovery, in light of the extra competitiveness the weak euro is giving us. This should give co-ops further confidence and encouragement to hold their May milk prices."

 

Meanwhile, Kiersey pointed out that the 24.4% jump in the AMF price was even more impressive in the first trading month of the index, when it rose by 43.6%. He said that SMP, up 21.3%, and whole milk powder, up 8.5%, are also significant shifts.

 

Kiersey said the IFA was concerned that prior Fonterra indices were "front-loaded" - with a large volume of the recorded product coming from early trade.

 

As such, the surplus early supply of milk may have been pushing down the price in the index for the past two months. Kiersey thinks Wednesday's (June 6) index volumes were spread more evenly. This will be clearer when viewed over a three-month or six-month period.

 

Kiersey added: "This is extremely good news for the Irish dairy sector, and for Irish farmers."