DAIRY industry sources have told Farming Life that the average price of US$3,256 per tonne, which was paid for Whole Milk Powder (WMP) at this week's Fonterra Internet auction, is equivalent to a producer return of between 21 and 22 pence per litre.
This figure represents a drop of 1.6% on the previous month.
However, WMP is only part of the commodity mix produced in Northern Ireland. Skimmed Milk Powder (SMP) and butter prices are falling while cheese returns are on a par with those available
from WMP.
Of significant concern to the processing sector is the ending of export refunds on dairy products, which was equivalent to 4 pence per litre. The threat of product intervened last year being released over the coming months by the European Commission is another factor which could weaken the overall tone of international dairy markets moving forward.
Processors have also made it known that they want, if at all possible, to keep local producer prices above 20 pence per litre this summer. But for this to happen Europe will have to clear 300,000 tonnes of additional product, when compared with the commercial sales levels achieved in 2009. If the European Commission is forced to open its intervention stores later this year, then producer prices in Northern Ireland will fall to around 18 pence per litre.
The Ulster Farmers' Union, however, is cautiously optimistic about Northern Ireland milk prices despite the reduction in prices recorded at the Fonterra auction.
UFU Deputy President John Thompson indicated that the Fonterra result is more positive than it appears.
He added: "This slight downward movement reflects the fact that the Dollar has strengthened in recent weeks. Consequently, the price in Euro terms is actually marginally up by €25 per tonne from last month. The February auction recorded an average price of US$3,256 per tonne, which was slightly down from January's average price of $3,309.
"The Fonterra auction is a useful and accurate barometer for the United Dairy Farmers Auction and whilst the UFU is disappointed that the auction has dropped slightly, it still compares favourably to the 7.6% drop recorded in January 2010. This month's result reinforces the belief that the market is stabilising and this is reinforced by the fact that late season production in Australasia was affected by their adverse weather and the continued demand continues to be strong and relatively on world markets."
The UFU believes that this stabilisation should be reflected in the next United Dairy Farmers auction due to be held on 25 February. Under normal circumstances, this optimism may be countered by the impact of the resurgent value of sterling in recent weeks, but the UFU believes that the impact of continued fall in milk production will be reflected in the next auction. Northern Ireland production was down in 2009 by 130.75 million litres to 1.72 billion litres, meaning there is less milk in the system. The cold weather at the start of the year is expected to have a downward effect upon milk volumes in Northern Ireland, with some analysts expecting a month-on-month reduction of as much as 9%.
Mr Thompson concluded: "In light of the aforementioned market observations, if you compare the direction of prices in New Zealand with the United Dairy Farmers auction, over the last 18 months, there is a clear correlation between the two. Anything less than a further stabilisation of local milk prices will not be acceptable as that would mean NI dairy farmers once again getting a price for their milk which bears no reflection upon the costs of production."
Fonterra, New Zealand's largest milk processor, concluded its latest Internet auction on Tuesday past, with the average price paid for WMP down 1.6%, or US$53 per tonne, from the January event. The average price achieved across all contracts and contract periods for WMP was US$3,256 per tonne. Prices ranged from US$3,175 per tonne FAS to US$3,355 per tonne.
Fonterra's Paul Grave confirmed that the result was within the range of price movements expected in the current market environment and signalled that the market was in reasonable balance.
"It is encouraging to see that prices remain relatively stable in a range that is high by historic standards," Mr Grave said.
"This result is positive given that over the last month dairy prices have been under pressure in Europe and the US."
