Two of the speakers said that the term volatility in the dairy sector has become a “cliché” and rather than seeing the effects of price volatility at present farmers and traders are just seeing “low prices”.
Dr Declan O’Connor from Cork Institute of Technology opened the conference giving an address on market supports and risk management in post-quota Europe.
Dr O’Connor said volatility in the dairy sector has been evident since 2007. Prior to 2007, butter prices fluctuated between a plus or minus of 5% from the average price levels. In recent times, prices have been fluctuating by 20%.
We’re not in a period of dairy volatility; we’re in a period of low prices. When prices recover then volatility will return
“We’re not in a period of dairy volatility; we’re in a period of low prices. When prices recover then volatility will return... (therefore) volatility is subjective depending on which side you’re talking to,” Dr O’Connor said. He added that trading in new areas will, inevitably, lead to more price volatility.
More and more dairy products traded as commodities
Dr O’Connor’s sentiments were echoed by Sascha Siegel, head of agricultural commodities at EEX exchange, one of the largest commodities markets.
Siegel said that more and more dairy products are being traded in the commodities market to help manage volatility. In 2011, EEX started trading dairy products and in that year it traded 2,600t of product. At the end of May 2016, it is trading 35,000t per year. Siegel said this will continue to grow as more processors sign up to initiatives such as fixed milk price contracts to manage risk.
The conference, which was organised by commodity traders FC Stone International, also heard from Andrew Baird, a trader with Fonterra, and Ammo Dhillon, commodity price manager with Tesco as well as Charlie Hyland and John Lancaster from FC Stone Ireland.
’Supply getting tight’
Demand for skimmed milk powder and butter has grown steadily over the past two years and this is set to continue, according to Olaf ter Bille, head of dairy hedge trading with Louis Dreyfus Commodities (LDC). LDC trades more coffee, oranges and cotton globally than any other trader.
Ter Bille said that LDC is forecasting a reduction in European milk production in the third and fourth quarters of this year by as much as 1.6%. He added that reduction in major milk-producing countries is helping to reduce stock globally.
We are getting to the end of the bearish cycle and prices should improve in the fairly near future
“I have good confidence that our figures are fairly accurate. Freely available stock is reducing and is getting quite tight. We are getting to the end of the bearish cycle and prices should improve in the fairly near future,” Ter Bille said.
He added that if the EU takes a further 50,000t to 100,000t of skimmed milk powder into intervention, that “this will clear the market to enable price rises”.
For more on milk price forecasts from these global dairy traders, see this week’s Irish Farmers Journal.?