Pressure growing on milk processors

A LEADING milk producer has told Farming Life that current world dairy markets are strong enough to deliver a 30 pence plus per litre producer price here in Northern Ireland.

Gary McHenry, who farms near Aghagallon added: “Milk output is falling dramatically in the Southern hemisphere. Argentina’s milk output was down 7.7% in December last; Australia in 2012 was down 1.3% year on year and 5.5% for the month of January 2013. So these deficits are increasing. For the 2013 calendar year the latest forecasts for New Zealand point to a decrease in milk output, following two boom years.

“Prices paid for whole milk powder at the recent Fonterra auction jumped by 18%. The reality is that current supply and demand trends fully justify a producer milk price in excess of 30 pence over the coming months, as milk production trends will remain under pressure in most key exporting regions.”

He continued: “It takes 8,000 litres of milk to produce one tonne of whole milk powder. At the last Fonterra auction, powder sold for £2835 per tonne. This equates to 35.44 pence per litre of milk used, or a producer price of 30.44 pence, once the processor margin of five pence per litre is taken away.”

Looking further ahead, Gary McHenry pointed out that international dairy markets will remain reasonably buoyant for the foreseeable future.

His views have been mirrored by Ulster Farmers Union Dairy Committee Chairman Andrew Addison.

He said: “The latest New Zealand Fonterra auction finished up last week with a 10.4% increase across the product range, giving an average price of $4,216 per tonne across all products. The price of Whole Milk Powder in particular saw a whopping 18% increase to $4,298 per tonne, which is the highest spot price since 1 March 2011. With New Zealand experiencing one of the biggest droughts in history, there are indications that dairy farmers in the North Island are only milking once a day and buying in large amounts of feed and those in the South Island are facing the same difficulties. This is a situation which cannot be easily recovered.

“With a substantially increased Fonterra result and strong global market overall, this must have a positive impact upon Northern Ireland milk prices. Our dairy farmers need a price that is reflective of the market given that production costs have been greater than the farm gate milk price for some considerable time. From a Northern Ireland perspective this was the first Fonterra auction since the demise of the United Dairy Farmers’ Auction and signs are positive in terms of milk pricing. Under the new pricing arrangements we will be closely monitoring producer returns from milk buyers to ensure that these significant market improvements are fully reflected.”

Dairy trade sources contacted by Farming Life this week confirmed that, apart from the United States, milk output is falling in all of the world’s main dairying regions. In their opinion, milk output trends in Europe will be the factor that has the biggest impact on producer prices here in Northern Ireland over the coming months. At current levels, this is returning a producer price equivalent of between 26 and 27 pence.

Farmers for Acton’s William Taylor told Farming Life that United Dairy Farmers must pay a sustainable price for milk over the coming months.

He added: “We will also be campaigning vigorously to have the monthly auction re-instated.”