‘Oil price hike may well strengthen world dairy prices’

Global oil prices have surged by 15% in the wake of last week’s decision by the Organisation of the Petroleum Exporting Countries( OPEC) countries to cut output by 1.2m barrels per day.

Yesterday saw crude oil prices sitting at US$52 per barrel. This is the first time in almost two years that oil markets have nudged ahead of $50.

LacPatrick CEO, Gabriel D’Arcy said that this is significant as $50 is the price at which the world’s oil producing nations will start to actively purchase dairy products.

“The $50 per barrel price is the threshold at which most oil producers cover costs and become cash positive.

“This increases their purchasing power and consumption which is positive for dairy consumption. But it will take some time and a sustained $50/barrel price plus to generate this demand.

Approximately 40% of the world’s dairy trade is normally done with oil exporting nations.

“There is a strong link between oil and dairy prices on international markets.”

D’Arcy also pointed out that 2016 is likely to be the first year for some time when total global dairy output has not increased.

“Given the dairy output reductions now taking effect in the EU and New Zealand, it looks like we could be seeing a zero gain in milk output around the world. And this will have a stabilising impact on prices.

“Volatility is now a major factor, impacting, on all the world’s food commodity markets.

“Over the last couple of years milk producers have been coping with the downward phase of the cycle, where dairy is concerned. But recent weeks have seen milk prices recover quite significantly. Future farmer prices will be driven by demand.”

The LacPatrick CEO said that, according to current OECD predictions, global dairy consumption is likely to increase by 27% during the period 2013 to 2023.

“We are also seeing changes in attitude impacting on the way that dairy products are perceived.

“Thirty years ago, butter was widely regarded as being very unhealthy, from a dietary point of view. But this perception is now changing, with the result that demand for butter is significantly increasing in North America and Europe. All of this is good news for the milk sector here in Ireland.”