Milk reduction scheme is driving improved market sentiment in Ireland

It’s still too early to say how many Irish dairy farmers will sign up for the EU voluntary milk reduction scheme: the initial closing date is Thursday of next week.

But, according to the ICMSA, the initiative has already played a key role in hardening the response of Irish co-ops to the recent upturn in the fortnightly GDT auction results.

“It’s more than significant that all of the processers and co-ops have reacted, almost immediately, to the strengthening sentiment coming out of New Zealand over the past number of weeks,” said an ICMSA spokesman.

“And, hopefully, this will be quickly reflected in stronger prices paid here in Ireland. The voluntary reduction scheme can be likened to a ‘Sword of Damocles’ hanging over the milk processing sector.

“All of the co-ops have processing schedules in place for the upcoming months. These are dependent on milk supplies remaining at the levels that would have been projected some months ago. Any significant reduction in these supplies would give the dairies real problems when it comes to making optimal use of the processing capacity available to them.”

ICMSA is also highlighting the commitment made by the French co-op Lactalis earlier this week to pay its farmer suppliers an average price of 26c/L for the 2016 calendar year.

“In meeting this target, Lactalis will be paying its suppliers 29c/L for milk supplied between now and the end of the year.

“This is a development which all Irish processors should take particular note of,” he said.

Meanwhile, Kerry Group has confirmed that only a small number of suppliers have, as yet, submitted an application for the Voluntary Milk Reduction Scheme.

“Decisions of this nature will be taken by farmers, depending on their individual circumstances,” said Kerry spokesman Frank Hayes.

Hayes noted the recent strengthening in prices paid at the GDT auctions. He pointed out that the improved constituent levels in the back end of the year would assist milk price returns and would have a bearing on individual supplier participation levels.

“The global downturn in world dairy prices, which took effect over the past two years, was a direct consequence of an over-supplied market,” he said.

“Supply and demand are the two core drivers of world milk prices. And we are now seeing evidence of some reductions in milk output kicking in on an international basis.”

Hayes confirmed that milk supplies to Kerry were up 0.5% for the first eight months of 2016, compared with the equivalent period of the previous year.

“Supplies fell back by 2.5% in August,” he said.

“Current weekly milk supplies are running at 97% of the volumes supplied in 2015.”