United Dairy Farmers’ CEO David Dobbin has confirmed that the co-op will pay its farmer suppliers an additional 2p/L bonus above base for milk produced during October and November.
The co-op’s September price dropped by 0.3p/L to 18.5p for Red Tractor certified farmers.
“But I feel that the market has bottomed out for the foreseeable future,” said David Dobbin.
“Prices next spring will depend on the scale of the output cuts achieved by New Zealand and Europe. Weather factors could also be significant. The last two milk price booms have followed-on from severe droughts in New Zealand and the United States.
“Supply and demand are the sole drivers of international milk markets.”
Dobbin believes that international milk markets will deliver an average farmgate price of around 26p/L once global supply and demand come into balance.
“It’s unlikely that prices will increase above these levels, unless a cataclysmic weather event kicks in to fundamentally alter the balance of the market,” he said.
“But market price is pretty much a meaningless concept. What really counts is the margin that dairy farmers can generate from the milk they are producing. Feed and other input costs have fallen significantly over the last number of months
“As a result, dairy producers should be able to make an acceptable margin, if milk prices were to reach the 26p level.”
Glanbia UK CEO Paul Vernon confirmed that the company paid a base price of 17.5p/L for September milk.
“This price will stick for October,” he said.
“We will also be paying a 2p/L winter bonus for milk supplied during October, November and December.”
Vernon indicated that international milk markets may not start to strengthen in a meaningful way until the second half of 2016.
“The truth is that no one can predict future trends with any degree of certainty. A few months ago Rabobank was predicting a market upturn before the end of 2015. Now they are saying that market sentiment may not change for at least another eight months.”