Has dairy turned the corner?

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Lakeland Dairies chief executive Michael Hanley is expressing a degree of cautious optimism regarding the immediate prospects for the milk sector.

“Without doubt, we are in a different place now compared to the pretty dire situation which the industry found itself in before Christmas,” he said.

“There is little doubt that the drought in New Zealand is seriously impacting on southern hemisphere milk output, the strengthening US dollar is making our exports more competitive and the EU’s super levy has taken the edge of milk production in Europe.

“And, yes, here has been a sentiment change for the good in terms of how the world’s dairy markets are operating. So, up to a point, I would concur with the view that we are seeing the first green shoots of recovery of world dairy markets.

“But these are still early days. The reality remains that European milk prices are still 15% to 20% above the international average.”

While acknowledging that the last three Fonterra auctions had been positive, Hanley said that he would want to see this trend continuing over the next three months, in order to more accurately gauge longer term market trends.

“We don’t know how Europe will react once quotas go,” he stressed.

“This is the big unknown. The EU outpaced every other dairying region in the world, from a production point of view, in 2014. If quota free Europe produces a wall of milk later this year, then this will have a negative impact on farmgate prices.

“China is the other big imponderable. It really is hard to predict that country’s future buying policy, where dairy is concerned. What we do know is that Chinese buyers will come back into the market over the coming months: the question is when?”

Mr Hanley discounted any impact which an ending of Russia’s ban on EU food imports might have on Europe’s dairy markets.

“Yes, there was a severe displacement effect last autumn, when the ban was first imposed. But, to a large extent the Russian factor has been taken out of the equation. Allegedly, significant volumes of EU cream are coming on to that market through Belarus.”

Despite the current degree of uncertainty, Michael Hanley believes that the future for dairy remains extremely bright.

“We are planning for growth because all of our customers want more dairy products from Lakeland,” he said.

“Our plan is based on a three pillar business model: delivering strong sustainable milk prices; investing for the future and securing sustainable profits for the business as a whole.

“And there is ample evidence to show that we are delivering on all fronts. Lakeland continues to pay the highest producer milk prices in Northern Ireland. I can confirm that we will be paying 22½ pence per litre for January milk: that’s no change on the previous month.

“We continue to invest in our Prichitt Foodservice operation: the recently developed £8m global distribution centre in Newtownards is state of the art.

“And this week saw the first sod cut on the site of our new £28 million milk dryer at Bailieborough.”