‘PPI jump merits milk price boost’

Dairy farm organisations are pushing for a boost in September’s milk price, highlighting the strong international markets and the rise in Ornua’s PPI (Purchase Price Index) as supporting factors.

The three-point jump announced this week in the Ornua PPI to 114.3 points – which is the equivalent to 34.7c/L including VAT – shows that Irish trading contracts are catching up with the stronger September butterfat and cheese in EU MMO (Milk Market Observatory) and spot price reports, meriting a stronger September milk price according to the Irish Farmers’ Association (IFA).

Speaking on the matter, IFA national dairy committee chairman Sean O’Leary said that the latest EU average returns remained strong to end September at around 41c/L.

After a 5c/L processing cost is deducted, this would suggest a price equivalent of 36c/L including VAT, and as other European dairy farmers were continuing to receive increasing milk prices into October, it is well justified for Irish producers to expect an increase of at least 1c/L on September milk.

“Friesland Campina will pay suppliers an extra 1.25c/kg for October, or a milk price equivalent to 37.65c/L at the Irish 3.3% protein and 3.6% butterfat standard.

“Arla too has increased its October milk price by 1c/kg, which for its UK producers will translate into a 1.5p/L increase to 32.3p/L. Also in the UK, First Milk has also flagged an October milk price increase of 1p to 1.1p/L,” O’Leary noted.

“Irish co-ops will be meeting from this week to decide on their September milk prices, and I believe board members must ensure that suppliers get at least 1c/L more for their September milk.

Global milk production continues to grow a lot more slowly than expected.

“New Zealand is experiencing a very wet spring, which has resulted in a 1.56% decrease in August supplies (Fonterra collections were down 2.5%), a trend which has persisted into September, and which could damage their mid-October peak,” the dairy chairman said.

“While the US milk output is growing slightly faster at 2.1%, the EU’s output growth is being held back by France and Germany’s only very modest recovery.

“Despite the 2.4% decrease in this week’s GDT weighted average auction price for commodities for sale to April, it remains a fact that butterfat and cheese returns continue at historical levels, and demand for butter and cheese outpaces supplies globally,” he said.

“In summary, markets remain strong despite some potential headwinds, and dairy farmers in Europe and further afield rightly continue to benefit in increased milk prices.

“Irish co-ops must make sure Irish farmers do not miss out,” O’Leary concluded.

‘Market evidence is positive’

The ICMSA (Irish Creamery Milk Suppliers Association) has also called for a boost to September’s milk price.

The chairperson of the ICMSA’s dairy committee, Gerald Quain, compared prices to what European processors are paying, stating: “The butter/SMP (skimmed milk powder) combination in the Dutch quotations is returning 41.6c/L after deducting processing costs and adding VAT.

“At EU level and based on EU Market Observatory data, the butter/SMP combination is returning 44.36c/L before processing costs – with WMP (whole milk powder) returning 40.9c/L.

“Monthly milk spot prices within Italy and the Netherlands, as reported by the same EU Market Observatory, are returning 44.2c/L and 41.9c/L respectively,” Quain noted.

The overwhelming evidence from the market is positive and indicates returns over and above where current milk prices in Ireland stand.

“The ICMSA expects to see that reality reflected in a minimum price of 37c/L and Ireland moving up the EU milk price league from its present poor 11th position for the highest paying processor – a position which, we repeat, is unacceptable given our investment in moving to value-added processing and our unique grass-based marketing advantage,” Quain concluded.