Dairy gross margins starting to fall across the EU

The average gross margin for EU dairy farmers has made its first significant decline in more than two years, as falling milk prices start to take effect, according to DaiyCo.

This assertion is based on the latest figures available from the European Commission. EU farm gross margins climbed steadily through 2013 and into 2014 in response to rising milk prices and slightly lower operating costs. The growth in margins started to fade from the start of the 2014/2015 milk year as farmgate prices were cut over successive months.

DairyCo’s analysis also confirms that, in the second quarter of 2014 (Apr-Jun), the impact of lower milk prices on overall gross margins was mitigated by reduced operating costs.

However, the reduction in operating costs is likely to have been seasonal and in the following quarter (Jul-Sep), gross margins were squeezed as costs rose and the average EU milk price dropped. This led to a 9% decline in margin between Quarter 2 and Quarter 3.

Despite this, the average EU gross margin in Quarter 3 was still higher than in the same period a year earlier.

Based on these estimates, it seems unlikely that the margins experienced in the final quarter of 2013 will be replicated this year as prices continue to face downward pressure, Dairy says. It goes on to say that this could potentially limit the current rate of growth in EU milk supplies, although herd expansion and the lifting of quotas in four months’ time could go against this.

Meanwhile, prices on European wholesale markets declined for all dairy products in November as EU milk production has remained strong. EU butter prices decreased (0.8%) between October and November.

Skimmed Milk Powder (SMP) prices fell 5.6% over the month, falling below €2,000/tonne for the first time since February 2010. Production levels remain active in many regions, which is placing pressure on prices. A weaker Euro, compared to the Dollar, has helped EU SMP to become more competitive and exports to Asia, North Africa and Middle East has improved.

During October of this year SMP exports from Ireland to China increased almost tenfold to just over 2,000 tonnes, compared with the levels achieved in October 2013.

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