Significant fragilities remain on the demand side of dairy markets – Bergin

Glanbia Ingredients Ireland (GII) chief executive Jim Bergin has said significant fragilities remain on the demand side of global dairy markets. With Brent crude oil still trading around the $50/barrel mark, the buying power of many oil economies has been hit hard.

“Oil economies typically account for 30% of global dairy imports but their oil revenues have been decimated. As long as those fragilities remain I’d be concerned,” said Bergin, who was speaking at a dairy information seminar hosted by Bank of Ireland and Teagasc.

Bergin added that importers such as Algeria used to tender for between 30,000t and 40,000t of milk powder at a time but were now buying as little as 5,000t to 10,000t of powders in tenders. Similarly, the severe devaluation of the Nigerian currency in the last year has made it very difficult to do business in the country. Nigeria now has a shortage of US dollar reserves and a black market for the US currency has emerged.

Cheap grain

Oil prices aside, Bergin cautioned that the most worrying factor for the dairy industry is cheap grain prices. With 80% of the world’s milk produced off grain, cheap grain will ensure the milk tap keeps flowing in many countries. The improving milk price will also incentivise greater milk volumes in the coming year as the economics of milk production improve.

Bergin said the recent problems in the global dairy market commenced as far back as 2014 when there was massive overproduction of milk, particularly from the US, which overhung the market.

“Since 2014, we’ve had a very slow, long reduction in milk price but we’ve had a very sharp improvement. Incredibly, we have recovered 7c/litre in the milk price since July,” said Bergin.

Bergin said the EU’s market interventions have worked after the Commission took 350,000t of skim off the market through intervention buying. However, that stock will still need to come out of storage and on to the market at some point.

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