Steady outlook for dairy markets

Pictured: Nick Whelan, new Group Chief Executive at Dale Farm.
Pictured: Nick Whelan, new Group Chief Executive at Dale Farm.

World dairy markets look set to remain reasonably stable through to the autumn of this year, according to Dale Farm CEO Nick Whelan.

“We have seen a contraction of supply across all of the world’s main dairying regions over the past number of months. Adding to this market strengthening effect has been a slight pick-up in demand from customers in China and North Africa,” he added.

Whelan admitted that Dale Farm has benefited from a weaker Sterling to the tune of 15% over the past 12 months.

“One negative is the fact that oil prices have remained reasonably weak,” he said.

While hesitant to predict how all of these factors will be reflected in future producer prices, the Dale Farm CEO confirmed that the co-op had committed to pay 25.8p/L for April milk.

“Forecasting milk prices is a bit like predicting the weather in this part of the world: it is fraught with difficulty. Just four weeks ago, I was of the view that we might have to pull our prices as we headed into the 2017 spring flush. But, thankfully, this has not turned out to be the case.”

Looking towards the end of the year, Whelan indicated that New Zealand is gearing up for a significant increase in milk output, to coincide with its spring flush.

“We will wait and see how that transpires,” he added.

However, he did confirm that Dale Farm will continue with its Winter Bonus scheme in 2017. This will see the co-op pay an additional 2p/L above base for milk supplied in October, November and December.

“We will also push ahead with our winter production premium in 2017. As was the case last year, farmers will receive an extra 4p/L on all extra milk produced during the period of the winter premium.

“This year the increase will be measured against recorded production levels in October, November and December 2015.”

Whelan also confirmed that Dale Farm wants more milk.

“We want all new entrants coming into the dairy industry to commit to a long term future with Dale Farm. Our main milk growth will be through our existing members and we will take on some dairy farmers supplying other processors if it is right for our business.”

Whelan justified the desire for more milk, given the growth in demand from Dale Farm’s customer base.

“A number of our retail customers are showing a 20% annual growth in their cheese businesses,” he said.

“Sports nutrition is another growth area for Dale Farm. These are value added opportunities for the business, which we must avail of. The last number of years has seen Dale Farm invest £60m in new processing facilities. We have the scope to manufacture extremely high quality dairy products.

“And we need to make optimal use of the processing capacity that is available to us, particularly at the shoulders and in the trough of the milk production year.”

Whelan indicated that outsiders looking in may be of the opinion that Dale Farm is well set up to cope with Brexit.

“Yes, all our processing facilities are in the UK, as are all our milk suppliers and we are 100% Red Tractor. In addition, 85% of our total output is sold to customers in the United Kingdom.

“The UK is far from being self-sufficient, where the likes of cheese, butter and yoghurt are concerned.

“And, of course, we have benefited from the weakening of Sterling that followed the EU referendum result.

“This is all positive. But the scenario could change completely if the UK signs up to cheap food import deals with other countries around the world.”

But Whelan is particularly concerned about any reduction in direct farm support levels in Northern Ireland, which could happen once London takes over the running of farm policy post-Brexit.

“The complete removal of the Single Farm Payment could take the equivalent of 5p/L off the milk price available to local milk producers. This could result in the wipe out of farming and food processing as we know it in Northern Ireland.

“Even if the direct payment reduction came in at the equivalent of 2p/L, many local dairy farmers could not survive. This is a message that we are communicating in the strongest possible terms to London through the auspices of Dairy UK and other industry bodies.”