Winter bonuses will help stabilise prices

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Milk prices in Northern Ireland should be bolstered by the winter bonuses that a number of the processors are committed to paying over the coming months, according to Strathroy Dairies’ Cormac Cunningham, writes Richard Halleron.

“These will be in the region of 2p/L to 3p/L and, when taken together, will cover the period October through to December,” said Cunningham.

“These bonuses will certainly stabilise base prices in the run up to Christmas. But it is still total speculation as to what happens after that.”

Cunningham confirmed that the recent strengthening of prices paid at Fonterra’s Global Dairy Trade event is a positive development.

“But this is only taking prices in New Zealand up to European levels,” he said.

“Meanwhile, prices in Europe are starting to strengthen again, but at a much slower rate than is currently the case in the southern hemisphere.

“Most market analysts are now predicting that global markets will continue to strengthen gradually over the coming months.”

But the Strathroy director is still concerned about the potential for the world’s three main dairy exporting regions – Europe, New Zealand and the US – to continue producing enhanced levels of milk output.

“There are indications that New Zealand milk output may fall by as much as 5% over the coming months,” he said.

“And this will be positive in terms of bringing global milk supply and demand more into line. But we would need to see the EU taking its foot off the accelerator pedal as well. A 1% increase in European milk output could wipe out a 10% reduction in New Zealand milk volumes.”

Cunningham said that the breakeven milk production price in Northern Ireland is in the region of 25p/L to 27p/L.

“During the winter months this figure is in the region of 30p/L. Northern Ireland has a much flatter milk production profile than is the case in the Republic of Ireland. This means that producers north of the border could be seriously exposed to the vagaries of international milk markets for at least the next six months,” he said.

Strathroy Dairies paid its suppliers in Northern Ireland a base price of 20.5p/L for August milk.