Stable milk prices are expected in the spring

UFU dairy chairman William Irvine
UFU dairy chairman William Irvine

The UFU dairy chairman William Irvine says that despite a predicted slight weakening in milk base prices in early 2018, prospects should remain stable as we enter the month of March, with peak production only a few months away.

Mr Irvine said: “Commodity prices in early 2018 are providing better returns than what was anticipated at the end of 2017, with butter seeing a €500/tonne increase in the Netherlands. Only Skimmed Milk Powder (SMP) showed a downward trajectory, and some in the industry have indicated that this, along with the c.370,000 tonnes of SMP in Intervention stores are providing an ominous overhang on sentiments as we carry on into 2018.

“Last week I attended both COPA-COGECA Milk Working Group as well as the European Commission Civil Dialogue Group meeting on Dairy, where I heard another angle on this story. There is no doubt that SMP prices are currently being impacted upon by the SMP Intervention volumes, with the European Commission acknowledging that there may be a short term downward correction in SMP price.

“However, in relation to the NI product mix, unlike butter and cheese, SMP is not a significant part of the local mix and therefore, its price does not impact upon local farmgate prices.”

With regard to the existing SMP intervention stocks, there is cause for optimism rather than gloom. European Union export figures, as well as growing Chinese imports are showing a growing demand for SMP.

Mr Irvine continued: “According to the latest report from the Milk Market Observatory, 2017 saw record EU export levels for SMP. This was reaffirmed by a senior European Union Commission official, when addressing a recent major dairy conference in Glasgow, adding that should these export levels continue, it will only be a matter of time before the Commission will have to access Intervention stocks to meet demand. Added to this, EU SMP Production was down 2.6% in 2017.”

Meanwhile in China, SMP imports were with 46,493 tonnes also up by 41.7% in January (on January 2017). Whilst almost 90% of the Chinese SMP import market is shared between NZ and Australia, European Union Member States managed to increase their joint share to 5% of the imports and this will grow in 2018.

Mr Irvine added: “In light of these facts, the UFU expect to see a stabilisation in base milk prices as we approach the Spring.”