Milk price must start with a ‘3’ for all 2018

Irish base milk price must start with a ‘3’ throughout 2018 writes IFA Dairy Chairman Tom Phelan

GOOD milk prices in 2017 have led to production increases in all the world’s main dairy regions – with the weather-related exception of New Zealand.

Rapid output growth and accumulated stock of SMP in intervention have subdued demand, and have weakened most commodity prices. This has reduced real time returns, though most Irish co-ops benefit from the combined “hedging” effect of our high seasonality and the Ornua PPI.

As farmers count the cost of snowstorm Emma, Co-ops must hold the February milk price, and ensure their base milk price continues to start with a “3” not only for this spring, but for each month of 2018 – the truth is, dairy farmers will need it to deal with the production challenges which face them in 2018.

Farmers need strong prices in 2018

After the shock of snow storm Emma for so many dairy farmers, we cannot forget that 2017/18 saw rainfall far above average in all parts of Ireland.

The poor weather has affected ground conditions and grass growth. Cows were brought in early last year, and few are out yet this spring. Fodder reserves were rapidly depleted. The cost of the additional forage and the necessary supplementation with compound feed will have substantially increased the cost of production at the back end of 2017, and in the early part of 2018.

Slurry stores have also filled rapidly, while the opportunity to spread after the end of the closed period was severely hampered by bad weather. In addition, this year, the new conditions for extension of the new Nitrates Derogation will require many to invest heavily in additional slurry storage capacity, and in costly new low emission spreading equipment.

This comes after only one year of strong price recovery and income growth, following from three years of uninterrupted price falls.

Farmers are ill-equipped to deal with a significant milk price decrease any time in 2018, and co-ops must make a commitment that they will hold the February milk price and keep base prices above 30c/l for the year.

During 2017, co-ops needed to rebuild their balance sheet, and had ample opportunity to do this. Recent statements by Glanbia and Kerry reporting on their strongly positive 2017 results suggest greater optimism from industry on the outlook for dairy markets in 2018.

The first three GDT auctions of 2018 have been positive, influenced by lower NZ milk production, with the fourth on 20th February marking a beat as the weighted price index fell marginally. GDT prices for the main commodities have risen by between 9% and 20% since December.

Futures markets (EEX) last week also suggested likely price improvement during 2018 .China, Japan and Malaysia are expected to continue to grow their dairy imports (it was up 23%, 19% and 7% respectively for 2017), though other large SE Asia countries may be less active.

Co-ops must give strong market signals – not just talk down milk prices

Strong market signals from industry must be about more than milk price decisions: it must be about informing farmers of markets we are uniquely well placed to supply and which can deliver sustainable returns. Future industry planning can no longer be purely supply-driven, with expansion expected to be its own reward. It must be about identifying and servicing market needs for sustainably produced high quality dairy products, and optimising the returns for Irish farmers.

Tom Phelan.