Dairy markets under pressure

editorial image

The current trough in world dairy markets is lasting longer than either dairy farmers or milk processors had expected, according to Fane Valley CEO Trevor Lockhart.

“This means that all the stakeholders within the dairy sector will have to run their businesses in ways that reflect these trends,” he said.

“Milk prices paid at the Fonterra Global Dairy Trade auction have fallen by 29% since Saint Patrick’s Day while EU commodity prices are currently below where they were back in 2009.

“Milk output in the EU is currently projected to increase by 3% during 2015: the equivalent figure for the United States is 1.2%. There was speculation some months ago that New Zealand milk output might have decreased on the back of an anticipated drought at that time.

However, late season rains in that part of the world actually served to boost New Zealand’s level of milk output.

“However, late season rains in that part of the world actually served to boost New Zealand’s level of milk output.

“Milk products are now traded freely on world markets: it’s all about supply and demand. And from a Northern Ireland perspective, what we need to see happening is a weather related event somewhere in the world, which takes the edge off global milk production, or something which stimulates fresh demand for dairy products.”

Trevor Lockhart admitted that a reversal of Russia’s decision to ban EU food imports would help to stabilise EU dairy markets.

“We are coming up to the anniversary of the decision taken by Russia to introduce the ban,” he said.

“In fact, it is widely anticipated that Moscow will review the measure in advance of the August anniversary. But there is absolutely no guarantee that this process will automatically lead to the re-opening of the Russian market to EU food products.”

Lockhart also believes that EU intervention prices are out of touch with the current milk production costs incurred by European dairy farmers.

“Strenuous attempts have been made to have this situation rectified,” he explained.

“But up to this point Brussels has steadfastly refused to consider any requests of this nature. The current policy at EU level is to ensure that intervention does not act as a market in itself. In practice this means that intervention support will only be triggered when dairy farmers are losing significant sums of money.”

He concluded: “I fully recognise the challenges confronting local dairy farmers at the present time. Processors are also feeling these same pressures. The reality is that world dairy markets will remain depressed over the coming months and everyone within the dairy supply chain will need to take account of this in their business decisions during the period ahead.”