GDT result does not undermine strength of world dairy markets

AHDB analyst Luke Crossman has characterised the 3.9% fall in the average prices paid at this week’s Global Dairy Trade auction as a minor ‘re-balancing of the market’.

I would categorise the slight fall at the previous auction as further evidence of this, he said.

“However, the general trend in dairy markets trends is for the strength in returns witnessed over the past six months to be, at least, retained.

“The reality is that we have seen a very sharp upwards movement in global dairy prices during the second half of 2016. So it comes as no surprise that buyers are now slightly stabilising their positions.

“UK wholesale dairy prices fell back to a small extent in the run-up to Christmas.”

Crossman confirmed that the GDT reflects the specific market conditions that pertain in Oceania. The total volume offered at this week’s auction was 22,400t, around 14% less than the same week in 2016.

The AHDB representative added that the influence of the EU Commission’s strategy to offload the milk powder stocks, now in intervention, could be more significant in terms of its potential impact on commercial markets in this part of the world.

“Brussels is planning another tender event, which will take place over the coming week or so.”

It will be interesting to see if the Commission holds the line, in terms of sticking to a minimum price, or will it opt to offload a significant tonnage of product at a lower return?

“There are currently 330,000t of skimmed milk powder in intervention.

“The vast bulk of this product will be sold on commercial markets. There is a school of thought that selling a significant proportion of these stocks now might have the least impact on world markets and producer returns.”

The AHDB representative said that it may well be the summer before EU dairy farmers would be in a position to increase milk output significantly.

“The same principle holds, where Oceania is concerned. The only region of the world experiencing an increase in dairy output at the present time is the United States.”

IFA National Dairy Chairman Sean O’Leary agrees with analysis, saying that despite the average decrease in the latest GDT index, the price of butter rose by 0.5%, and that of skimmed milk powder by 2.3%.

The GDT prices for those two products would yield an Irish milk price equivalent of just over 36c/L before VAT.

“Meanwhile, the latest available EU market prices for butter and skimmed milk powder, as reported by the EU Milk Market Observatory just before Christmas, would return an Irish milk price equivalent of just over 32c/L before VAT.

“With milk output continuing to decrease globally, and demand remaining solid in both developed and emerging countries, I see no reason why co-ops would not have the confidence to increase milk prices, both for December milk, and indeed into the spring.”