Difficult year ahead for EU dairy prices – report

Although there has been some recovery in EU dairy prices over the past year, the European Commission’s EU Agricultural Outlook report  suggests that it could be a difficult year ahead.

Published earlier this week, the report delves into the performance of EU dairy markets and provides a medium-term outlook up until 2030.

The report states that all dairy prices – with the exception of skimmed milk powder (SMP) – recovered this year. These price increases were driven by a fall in production during the last quarter of 2016 and the first quarter of 2017, along with strong demand for dairy fats.

On the back of high prices in September, affordable feed prices and good grazing conditions, the commission expects EU milk collections to reach 164 million tonnes this year – up 0.8% on 2016 levels.

Furthermore, the commission envisages significant milk production growth next year; mainly due to a recovery in France and Germany.

Despite this recovery in production, volatility is likely to remain ever-present in the market. And, the commission suggests that operators involved in the supply chain will need to develop strategies to limit exposure to commodity price volatility going forward.

A number of leading Irish producers have already taken this on board with the introduction of fixed milk price schemes, which – in some instances – helped farmers deal with lower farmgate prices last year.

Skimmed milk powder woes

Despite relatively good performance from cheeses and dairy fats, the stocks of milk powder currently held in intervention remains a worry.

The commission states that cheese processing offered the best returns in 2017 and this should continue in 2018. However, with an expected increase in milk collections likely, prices look set to be under pressure.

In addition, given that butter prices skyrocketed in 2017, returns are expected to fall further next year. Over recent weeks and months, the prices being achieved by these products have already started to decline.

Despite this, the price gap between SMP and butter may even widen further – at least in the next two years.

On the dairy protein market, the commission reports that demand and low prices drove record EU SMP exports close to 40% above the previous year. This level of exports and the reduction in SMP production led to a strong decrease in private storage stocks.

However, given that SMP fell below intervention prices, additional quantities were purchased this year. This pushed intervention stocks from 351,000t at the end of 2016 to 381,000t this year.

Such a high quantity of stocks adds to the uncertainty on the dairy market in the short term, particularly regarding when and at what price these stocks will be released.