Further cuts to milk prices are likely based on the current trade for dairy products in the EU, according to TJ Flanagan of ICOS.
In an update in the dairy market, Flanagan said that last week’s Eurex indices suggested average SMP values at €1630, well below the Intervention price of c.€1747, and butter is quoted at €2423, about €200 above the buying-in price of €2217.
He said those commodity prices are suggestive of milk prices, inclusive of VAT, of just over 20c/L.
Meanwhile, Flanagan said the Ornua PPI, although down to 84.2 for March (from 84.4 for February), is demonstrating that the Irish product mix and investment in value added is helping to maintain milk prices of 10-15% above those levels.
The concern, though, he said will be that butter slips to intervention price levels, and we could be back in the price environment of 2009.
“In the absence of any substantial improvement in market sentiment, and against the backdrop of continued weakening in the European market indices, it appears likely that further milk price corrections are on the way,” he warned.
Global Dairy Trade
Meanwhile, Flanagan said the most recent GDT auction showed a 2.1% increase.
“Unfortunately, this didn’t cancel out the 2.9% drop in the previous auction, and the current WMP price of $2013 suggests a milk price of about 17.5c/L.
“Indeed, the current Fonterra milk price forecast of NZ$3.9 per kg of milk solids would equate to about 16.2c for Irish standard solids,” he highlighted.
According to Flanagan, while New Zealand production for this season is only down 2.2%, and not the 5% plus as originally speculated, one would have to expect that the reported financial stresses felt by New Zealand farmers will have a further depressing effect on production.