Slump in dairy and grain prices goes on

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Farmers on the island of Ireland are unlikely to see any lift in milk and grain prices over the next nine months at least, a major agri-food conference has been told.

Kevin Bellamy, global analyst with Rabobank in the Netherlands, told the Agricultural Science Association (ASA) conference in Kilkenny that a continuing sluggish global economy and a gradual slowing of growth in China, which has been a key driver of increased food demand over the past decade, indicate little prospect of a lift in prices until the second half of 2016 at the earliest.

“The strength of the dollar, while good for food exporters like Ireland, also makes things more expensive for developing countries leading to a slowdown in food demand growth,” he said.

Addressing over 400 farming and food industry leaders, Mr Bellamy said global dairy prices have dropped 60% over the past 12 months and are now back to the crisis levels of 2009.

“Certainly, the weakening of the euro relative to the dollar and sterling has cushioned Irish dairy farmers against the worst effect of the slump in prices.  While Irish milk prices have fallen, in dollar terms Ireland is currently the lowest cost producer in the world, easing access to export markets,” he said.

“Increased milk output in Europe and globally combined with high stocks of dairy products in the US and China and sluggish demand will continue to keep prices down,” he added.

He said milk producers and dairy processors can expect little respite until the second half of 2016 when China is expected to return to the market and there is a rebalancing of production in the major dairying areas of the world.

“The expected El Nino weather phenomenon could also impact on milk production leading to increased risk of drought in Australia and more rain in areas such as California. 

“Also, producers in high cost regions of Europe are likely to slow production.

“While New Zealand dairy company Fonterra is predicting a drop of just 2% in New Zealand milk output next year, other forecasts point to a drop of as high as 10%,” said Kevin Bellamy.

Referring to grain, the Rabobank analyst said record stocks of wheat in the US, big harvests in the major growing regions of Russia, Ukraine and Kazakhstan and what USDA claim will be the second highest ever soya bean harvest in the US mean prices will continue to be weak.

He said a reduction in the number of cattle in Ireland resulted in record prices for Irish beef in the first half of 2015.  This happened in spite of an increase in European beef output and a massive drop in beef exports to Russia. 

“With such a large share of Irish beef going to Britain, the weakness of the euro relative to sterling made a big contribution to price buoyancy.   

“However, with the likelihood of increased beef supply in Europe due to a reduction in dairy cow numbers and consumers becoming more nationalistic when buying beef, as is now being advocated in France and the UK, beef prices in Ireland could come under pressure over the coming months,” he said.