The chief executive of Kerry Group’s dairy division has said that further milk price cuts are possible as “significant downward pressure” on global dairy markets continues.
However, Pat Murphy, who heads up Dairy Ireland, told Agriland that there is hope that markets will improve in the second half of this year as demand for supply is anticipated to increase.
He said that there was a “big increase in milk output” during the last six months of 2022 across the world and these stocks are still working their way through the supply chain.
Dairy
“Because prices went so high last year in terms of dairy, it encouraged farmers to produce more milk. That supply now is hitting the markets. So over the last number of months, the demand has come back because prices got a bit expensive on the retail shelves,” Murphy said.
“Now there’s a bit of a difficulty where demand is back supply is up. So prices today are a lot lower than what they were this time last year.
“Last year, we paid the highest milk price we’ve seen I’d say historically in Ireland and across the world to farmers.”
Murphy explained that with inflation now running as it is and the cost of living crisis across the world, the consumer has less spending power which is being reflected in what is being bought on supermarket shelves.
“Stocks with our customers across the world have been high over the last number of months, especially in quarter four last year,” Murphy continued.
“We’re seeing those inventories now reducing and so as they reduce, buyers will have to come back out and start buying again and we’ve seen a little bit of pick-up over the last couple of weeks.
“But there is still unfortunately a little bit of more downward pressure coming in the immediate couple of months. Hopefully then in quarter three / quarter four this year that prices will rebound and we’ll get back up to maybe current levels,” Murphy said.
Base milk prices for Irish farmers have been cut by 16c/L over the past three months. So can farmers expect to see more reductions in their upcoming milk cheques?
“It’s hard to know at the moment, I would say yes. There are significant inventories across the globe of skim milk powder, butter and cheese. I think we will see further downward pressure over the coming weeks and the next couple of months,” Murphy responded.
“But again, things can change very quickly, if supply comes back across America and Europe we might see a rebound then if demand picks up a little bit. We will see hopefully prices getting firmer again in the second half of the year.”
Investment
The chief executive of Kerry Group, Edmond Scanlon, told the company’s Annual General Meeting (AGM) on Thursday (April 27) that it has “strong ambitions” to grow its dairy business division “for the foreseeable future”.
Murphy noted that “there is significant investment going on every year” in Kerry Group’s dairy division.
The company has invested around €30 million to double the capacity of its Cheesestrings facility in Charleville, Co. Cork, which will be operational before the end of the year.
“The kid snacking market is a very important market for our consumer foods business and there’s growth there. We will target areas where we can see value coming back in,” he said.
“It’s a huge project, we have a huge team of people working on it and very optimistic about the next couple of years and how we are going to fill that factory.”
Murphy told Agriland that they have “a very strong relationship” with the Kerry Co-op but he added that no talks in relation a potential dairy business deal are currently taking place.
In April 2021, discussions between Kerry Co-op and Kerry Group on a proposed joint venture were suspended after over 18 months of talks.
Calves
The Dairy Ireland chief executive said that new proposals to ban the slaughter of calves under Bord Bia’s Sustainable Dairy Assurance Scheme (SDAS) are “very important” for the entire dairy industry.
According to the latest figures from the Department of Agriculture, Food and the Maine (DAFM), 29,756 calves have been slaughtered to date this year.
“We have incorporated that proposal into our terms and conditions of the purchase for milk in Kerry.
“To keep producing dairy and milk in this country we have to take on these issues as soon as possible. It’s a small number of farmers that are causing this difficulty out there.
“The department of agriculture knows exactly the mortality rates on these farms so with the department and the different stakeholders I think we can tackle this and and resolve it in the next couple of years,” Murphy said.