€10/cow gap between Irish and global prices

Irish prices decreased more than average in 2018 compared to our European neighbours. Importantly, when we compare like with like, there is approximately a 2c/l difference or €100 per cow in output value. This essentially means the Irish price is 94% of the LTO price paid in 2018. Earlier this year Ornua chief executive John Jordan stated that Ornua was paying 99% of the LTO average price to Irish processors for dairy product.

There is no direct comparison between processors on milk price as many have different markets, different investments, and different stages of development and growth etc. However, the LTO provides the best source of global milk prices available. Over the first six months of 2019, we have seen a much wider gap emerge between the better European and the poorer Irish prices.

Detail

The graph of global milk prices presented shows the 2018 LTO prices for the main players involved in trading dairy products worldwide.

Valio, the Finnish company that sells a lot of product into Russia, comes out on top of the big 10 companies we feature this week. The big Dutch player FrieslandCampina’s milk price comes in second. Danish company Arla is in third. Arla’s fall in prices (-2.7%) was limited by the decision not to set aside any part of the profit for 2018, but to distribute it in full to the member dairy farmers. This decision was taken because of the drought dairy farmers were faced with in 2018.

The milk prices of the French dairy company Sodiaal has increased slightly, as a result of which it is much higher in the ranking than last year. Milk prices at German companies DMK and Müller Leppersdorf decreased significantly more than average, by 7.7% and 6.7% respectively.

Irish prices

LTO also reviews milk prices for three of the big players in the Irish scene – Dairygold, Glanbia and Kerry. According to LTO, Irish prices decreased by 4.4%-5.3% more than average.

The milk price calculated for New Zealand’s Fonterra of €29.86 per 100 kg of standard milk includes dividends and is based on milk prices and milk price forecasts published by the company. It is recalculated for the calendar year in the table.

As an indicator for the development of the milk price in the US, the Class III milk price (expressed in $ per cwt (= 45.36 kg)) and associated protein and fat prices published by USDA are converted into €/100 kg of standard milk. The milk price calculated in 2018 is €31.49 per 100 kg, and, unlike last year, is below the EU average.

It is not fair to compare the average LTO milk prices to the average Irish Farmers Journal/KPMG Milk Price Review as you would not be comparing like with like.

The KPMG prices are based on the fat and protein the co-op receives – not a standardised price as per the LTO. However, we can look within both and draw some comparisons.

If we take the Irish Farmers Journal/KPMG prices for Glanbia, Dairygold and Kerry, the average price is in the region of 33.5c/l for milk at 4.10% fat and 3.50% protein (7.6% solids).

This represents a sizable pot of milk in the context of the Irish milk pool.

This means in 2018 Irish prices are back 2c/l for milk of a similar quality or in effect the Irish price is 94% of the three selected LTO prices

If we take three big players in Europe – FrieslandCampina, Arla and Sodiaal – the price paid is in the region of 35.5c/li for milk at similar solids – 4.20% fat and 3.4% protein (7.6% solids).

This means in 2018 Irish prices are back 2c/l for milk of a similar quality or in effect the Irish price is 94% of the three selected LTO prices.

While milk price is one indicator, we need to look into company profits and investments of global players to get a more complete picture of the businesses as Eoin Lowry details on page 17.

The Irish Farmers Journal/KPMG Milk Price Review and analysis published last week calculates manufacturing milk prices differently to the LTO prices. The KPMG price is defined and results reviewed as milk purchased under a manufacturing contract and used in the manufacturing milk process. For the purposes of this review, liquid milk, as defined, is sold for human consumption, is not purchased under a manufacturing contract and is not used in the manufacturing process.

The LTO milk price calculated by Dairygold includes a seasonal bonus of €3.46 per 100kg in February and special weather/fodder relief payments in March and April.

In addition to the milk payments from GIIL, the co-op paid bonuses and also a supplementary payment was made for the milk delivered in 2018

Glanbia’s milk price is for the milk supplied to Glanbia Ingredients Ireland Limited (GIIL) by the members of the Glanbia co-op. GIIL is a 60/40 joint venture between the listed Glanbia plc and the co-op. In addition to the milk payments from GIIL, the co-op paid bonuses and also a supplementary payment was made for the milk delivered in 2018. Both these monthly bonuses and the supplementary trading bonus payments are included in the milk price calculated financed from the dividend income.

The seasonality bonuses in February (€4.03) and November (€2.01) have also been included in the milk price calculated.

Remember, Kerry retrospectively increased the monthly milk prices in 2018. These payments (January-March +1.5c/l, April +1 c/l and May to December +0.5c/l) have been included in the milk price calculated.

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