Difficult dairy outlook ahead: Milk price will ‘struggle’ to average 30c/L

After a record-breaking year for Irish dairy farmer returns in 2017, when relatively good milk prices and an expanded national herd helped to bolster profitability levels, the outlook for 2018 appears to be more difficult.

A number of factors are combining to make it look like a challenging first six months of the year for Irish dairy prices.

Firstly, there’s a substantial skimmed milk powder overhang casting a shadow on the market. As it stands, the European Commission is currently sitting on a stock pile of approximately 370,000t of such a product in intervention.

Secondly, many surplus dairy producing regions – such as Europe, New Zealand and the US – are all expecting to step up production this year. Thirdly, the impact of the butter bubble ‘crash’ can not be underestimated.

How the markets react to these three challenges, is set to determine how the returns generated at Irish farm-gate level, will be impacted upon over the coming months.

Speaking at today’s Positive Farmers Conference in Co. Cork, one of the country’s leading dairy bosses, Jim Woulfe, suggested that farmers need to be prepared for a lower average milk price for this coming year.

There’s a real possibility that farm-gate milk prices will struggle to average 30c/L over the 2018-calendar year.

Global milk production

The Dairygold chief stated: “If we look at what defines the price, it’s about the surplus regions and what’s happening in those particular regions.

When we look at the US, South America, Europe and Oceania, we see large producers with smaller percentage populations of the globe.

Woulfe added that what happens in these regions – to a lesser extent in South America – is a good indicator of how Irish farmers’ milk cheques and incomes will be affected.

Giving an indication of what may lie ahead, he said that the demand for dairy products is expected to increase by 2% – while global milk production is set to increase by 1.8% in 2018.

Predicted milk supply increases in 2018:
  • US: +1.7%;
  • New Zealand: +1.4%:
  • Europe: +0.3%.

“From an Irish perspective, we are well positioned to capitalise on that demand and we have the natural resources and the cost base – which are so important in the longer term.”

Continuing on the supply front, Woulfe said: “What happened in the last quarter of 2017 has really influenced where we are starting out from now.

In Europe, we’ve seen a 4.5% (estimated figure) increase above the prior year between October, November and December.

“Strong prices right across Europe really influenced production. If we look at the four big European milk producers – Germany, France, Holland and the UK – they represented about 55% of European milk.”

Drawing from many sources, Woulfe added: “What the experts are saying, and telling us clearly, is that we are going to get a lot of milk in the first half of the year.”

Outlook

On intervention stocks, he said that 80% (about 290,000t) of the intervention skimmed milk powder stocks is more than 18 months-old and will have to be sold into animal feed and not into human consumption.

“The intervention stocks are overhanging the market and it’s influencing customers.”

Touching on butter prices, he said that the butter bubble has burst and prices have returned from highs of €7,000/t, back to €4,000/t currently.

That has really been underpinning milk prices, in the Irish context and across Europe, over the last 12 months.

For the coming year’s prices, he said: “Just calling it at this point in time; we will struggle with a three in front of it (30c/L) from the point of view of an average for the year.”

Despite this, he stressed that the outlook for the Irish dairy industry is positive going forward and Irish farmers are in an excellent position to fill some of the increased demand for dairy products in the coming years.