Co-ops to set March price next week

Over the next 10 days, farmer boards will meet to set March milk prices. The big players in the UK have held and even increased milk price for April. The GDT rose this week. In contrast, the Ornua index dropped for March and prices of global dairy commodities have fallen.

The board of Lakeland will meet on Thursday this week to set a March milk price while the Glanbia board will meet next Tuesday. The rest will meet over the following 10 days.

The global mood is mixed

The farm organisations will be adamant that farmers need support through a difficult, high-volume production time of the year, and a costly time on farms.

The global mood is mixed.

However, Irish farmers will be thankful the Irish dairy market is not comparable to some of the noise in markets that have been disrupted most over the last 10 days.

This week, Ornua released the March PPI at 106.4 (30.2c/litre excluding VAT) down from 111.6 (31.8c/litre) for February. It suggested cheese price stability, but pressure on butter and powders as the reasons behind the fall.

Remember, the Ornua index reflects the typical market return for a basket of butter, cheese and powder and subtracts an estimate processing cost.

PPI track record

When we compare the last 15 months of the Ornua PPI to the average of the main processors, we can see that the co-ops have consistently underperformed relative to the index, except for March 2019.

This should leave some flexibility at co-op board level to help cushion recent market falls. Remember, the big players sit around the Ornua board table but also inform their own boards.

Some co-ops will be more severely affected

What I’m told is that most of the processors will have sold forward the product manufactured in February, March and April prior to the recent downturn in prices. This will help to alleviate any short-term effect on milk prices.

Some co-ops will be more severely affected if they are more exposed to the fresh milk market or food service as, quite simply, businesses have closed – fast-food outlets, flights and airports, etc. Milk will have to be diverted into other products and that will usually go into lower-value product as capacity is limited at this time of the year.

GDT auction up

New Zealand’s GDT index rose this week with prices rising for powders.

This will go some way to inform the market that China is getting back on its feet seeking product from New Zealand. Prices increased by 1.2% at this week’s GDT auction to $2,820/t (€2,590/t).

There is no denying that the impact of the COVID-19 pandemic on dairy demand

IFA president Tim Cullinan said: “The IFA believes a properly-designed, promptly-implemented aid to private storage scheme (APS) would provide the best suited support for the dairy sector in the face of market disturbances caused by COVID-19, while also facilitating a prompt market recovery after the pandemic crisis comes to an end.”

IFA dairy committee chair Tom Phelan said: “There is no denying that the impact of the COVID-19 pandemic on dairy demand, international trade and commodity markets is challenging. However, just as every other member of society, farmers’ confidence is also badly shaken. This is their busiest time of year, and also when their cashflow comes under the greatest strain.

“Every cent for their milk at this time will determine farmers’ ability to pay mounting bills, many of which are with their own co-ops.”

It is already obvious that the retail sector will profit handsomely from the current crisis

ICMSA president Pat McCormick said: “Measures from the EU are needed now to include private storage aid [APS] for dairy products and direct supports for farmers hit by COVID-19-related price cuts.

“It is already obvious that the retail sector will profit handsomely from the current crisis and it is simply not acceptable that the farmer, the primary-producer of food, is expected to shoulder the hit while the retailer of that same food actually profits.”

France and the US

France and the US are both looking to establish milk supply reduction schemes. If implemented, both will help Irish product in export markets.

The French have established a fund of €10m and are willing to pay 32c/l for April volume reductions. They are seeking EU approval currently. Some French processors might take that up.

In the US, the National Milk Producers Federation and the International Dairy Foods Association have drawn up proposals for a six-month scheme that will compensate US farmers for milk not produced.

While the US is not big on export markets they are a huge player (over 100bn litres), so any reduction will be welcome news for others rather than the US exporting more product on to a depressed global market.

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