The improvements within the dairy markets have continued into 2019, with the recent GDT auction proving such with prices having increased by +2.8%. This has led to the ICMSA highlighting that they expect a further upturn in fortunes in terms of the dairy industry, especially with regards to prices paid to suppliers for milk.
The ICMSA’s Dairy Committee Chair, Gerald Quain, has indicated that his organisation expects a significant upward tick to result in a rise in farmer milk price. The news comes on the back of recent criticism from the ICSMA on price cuts by processors for November milk supplies, despite positive market developments and a PPI that they say didn’t justify cuts.
Dairy Committee Chairperson Quain was adamant that the last two GDTs signalled a positive turn for the industry. Mr. Quain highlighted Dutch dairy quotations that have continued to move upwards with powders performing well on the back of what he described as “an extraordinary” demand for SMP from EU Intervention stocks.
“The strong sales out of Intervention are, we think, very significant for dairy markets as we set off into 2019. The stock overhang of SMP has been massively reduced with over 270,000 tonnes sold out of Intervention in 2018”, he said.
Mr. Quain noted that the recent improvements in GDT auction results were due to increases in all products sold.
“Looking at markets in detail, the 2.8% increase in the most recent GDT auction was achieved by increases in all products sold with butter up 3.9%, SMP increasing 7.9% and WMP achieving 1.2% gains.” He said.
“These improvements in the GDT occurred after falls over the course of 2018 but, more importantly, they came at a time where New Zealand has increased milk supply over their production season. Dutch Dairy quotes for butter are holding strong having slipped from their highs of late summer, but they remain at a historically high level around €4,000. “ he continued.
Mr Quain said the most significant change has been the rise in SMP prices, which are at their highest level since mid-2017. He also noted that with fodder uncertainties and a marginal increase in EU milk production levels, buyers may become more anxious to secure produce, resulting in higher prices paid.
“The critical change is in the value of SMP where quotes have risen to their highest prices since mid-2017, while WMP has also seen improvements in the last six weeks to counteract falls in the Autumn.” Said the Dairy Committee Chair.
“Milk supplies within the EU have seen collections in October 2018 0.4% below October 2017 resulting in 52,000 tonnes less milk produced and with 2019 EU production expected to only marginally increase by less than 1% our expectation is that this - along with fodder supply uncertainty across the continent - will mean that buyers are a little more anxious to secure supply and that should feed-back by the end of Q1 into a higher farmer milk price”, said Mr Quain.
While waiting for the prices to feed-back to the farmer-suppliers, Mr. Quain called on processors to hold milk prices at least for the first quarter of 2019 and then review the market in light of supply and demand developments at that stage.
“We’d be confident that by then it will be obvious that a price rise is justified but, in the meantime, we just cannot see why processors would even consider not holding price and we’d be extremely angry if they weren’t willing to wait the few weeks till the market data confirms absolutely what’s already obvious – markets are moving upwards and prices will follow”, Mr Quain concluded.