Milk prices are “past the bottom or near the bottom”, according to a leading dairy analyst who said Ireland’s “big exposure” to global markets has been a key factor in Irish milk price volatility in recent months.
Richard Scheper, dairy analyst with RaboResearch Food and Agribusiness, believes there is room for “improvements” in milk prices but said it was difficult to forecast if this will happen before the end of 2023.
“I do think that we are past the bottom or near the bottom when it comes to milk prices so I do think there’s more potential upside than on the downside,” he said.
“What we have seen in the last three to four weeks might have been a short-term bullish run but if we look more to mid-term trends, we do see room for better prices for the end of 2023 and going into 2024,” Scheper added.
He said that there have previously been some “bullish runs” coming up to Christmas in relation to dairy prices as some “buyers look for short-term coverage”.
In general, this can be more applicable to global rather than the European domestic market and in relation to specific products including milk powders and whey.
Milk prices
But Scheper said that the exposure processors have, particularly to global markets, is also a fundamental factor when it comes to prices.
He added: “If you compare for example Irish milk prices against the ones in France and Italy over the past two years you see they are much different – the direction is the same up and down but Ireland prices have been much more volatile because of the product portfolio and also the markets they are exposed to.
“France and Italy both have a large domestic market but Ireland relatively is more exposed to global markets and exports and more to powder – and then you get more of those waves in prices.”
According to the Rabobank analyst it “always takes a few months before the movement in dairy prices is reflected in the milk prices”.
Scheper expects that for Irish dairy farmers, next year could prove to be more stable than 2023.
“We see upsides going into 2024 – potential upsides are for better milk prices but we must not forget that there is also an issue on the demand side.
“We see inflation of course, easing off, but until consumers really have their purchasing power back we are likely into 2024,” he added.
Rabobank dairy outlook
In its latest Global Dairy Quarterly report, the bank lowered its 2023 milk production forecast and said that this was driven by reductions in most key global regions including the United States, the European Union and New Zealand.
It also highlighted that in 2024 “output is expected to climb by 0.4% – far less than the 1.6% annual average gain seen from 2010 to 2020”.
But according to Rabobank “if buyer confidence increases and consumers flock back to procure products enmasse, the world may be short on milk, providing a firmly bullish runway into 2024”.