Europe must move to sell some of the skimmed milk powder stocks currently held in intervention, Michael Hanley, CEO of Lakeland Dairies, has warned.
Speaking on the outlook for dairy markets at today’s Teagasc National Dairy Conference, Hanley said: “Demand seems to be up by 1.5% and supply seems to be the same. The market isn’t that much out of balance today.
“However, the one overhang that is there is the 400,000t of skimmed milk powder in intervention.”
He continued: “The outlook for milk price does look weaker than it did six months ago. But, if a couple of hundred thousand tonnes of skim were moved out of intervention the outlook would be different.
Intervention stocks are giving a lot of confidence to buyers and they’re using those stocks as a lever to keep pressure on fresh skim prices.
Hanley also questioned why over 30,000t of skim was entered into intervention over the past 12 months – a period when the milk prices paid to farmers increased from 29c/L to 36.5c/L in Lakeland Dairies.
“There’s 2t of skim for every tonne of butter and butter prices climbed all the way up to €7,000/t, which was totally unexpected.
“However, skim prices went from €2,000/t down to €1,400/t; skim has dropped significantly, while butter prices have risen and that has helped to increase milk prices over the past 10 months.
“Butter has now come back from €7,000/t and skim is below intervention prices. The commissioner (Phil Hogan) now has to question whether he is going to pay an intervention price, which is poor enough for skim going forward.”
Hanley also said that 20-25 years ago, a significant quantity of skimmed milk powder was used in calf milk replacer. But, he admitted that it’s very hard to find a calf milk replacer containing skim milk solids now.
We need that clock to be turned back and to tell the commissioner to release a couple of hundred thousand tonnes out of intervention and sell it at a price into calf milk replacer. We need to get it consumed, used and off the market.
“It’s a shadow over dairy markets and – if it wasn’t in intervention – I don’t think that the outlook for next spring would be as negative.”
Brexit and milk production
Hanley also said that milk production in Ireland has gone from 5.5 billion litres to over 7 billion litres and that trend is set to continue.
“Our milk suppliers are increasing production by about 5% each year and we have had a significant number of new entrants across our catchment area.
“We are well invested in processing facilities to process this additional milk and we are selling product into 80 countries around the world.
Half our milk supply comes from Northern Ireland and half of the supply come from farmers in the south of Ireland; Brexit is an obvious concern.
“We have two processing sites in Northern Ireland and three processing sites in the south of Ireland so, depending on how Brexit turns out, we have a contingency plan,” he said.