Dairy farmers are facing reductions of 2c per litre for March milk supplies, with further cuts of 3-4c/l being touted into early summer.

 

The cuts will see milk prices fall to 30-31c/l for last month’s deliveries, and could result in base milk prices hitting as low as 26-27c/l by July unless international demand recovers quickly.

 

These price reductions could cost dairy farmers more than €65m by mid-summer, and well over €130m if they last into the back end of the year.

 

Farm organisations have urged processors to hold milk prices for March, and then re-assess the situation as the spring progresses.

 

However, with returns for dairy commodities continuing to slide on spot and futures markets, and sales into the service sector shut down across Europe and Asia as a result of the Covid-19 crisis, processors insist that farm-gate prices will have to start coming back from this month.

 

International dairy markets have taken a severe hit over the last two months as the Covid-19 pandemic has shut down retail outlets and slashed global demand.

 

Industry sources said the growing uncertainty in the sector was being fed by an “absence of clarity” around how long the current Covid-19 restrictions will last.

 

The extent of the damage these measures will inflict on the existing supply chain and on long-term demand is also unknown.

 

“Confidence hasn’t been helped by reports that British farmers have had to spill milk because processors don’t have a market for it, and the spot price there falling to 15p/l (16.5c/l),” another source said.

 

With over 2.2 billion litres of the national milk pool supplied between March and June, an average cut of 3c/l for this period would cost the country’s 17,000 milk suppliers more than €65m.

 

And losses could spiral to over €130m if the price reductions remain in place for the rest of the year.

 

IFA dairy chairman Tom Phelan has called on co-op board members to do everything they can to hold milk prices at February levels.

 

“This is where we need the real ethos of the co-operative movement to work for farmers. We are all in this together, and the industry must collaborate to ensure the sector can come through the challenge of the pandemic,” he said.

 

“This is dairy farmers’ busiest time of year, and also when their cash-flow comes under the greatest strain. Every cent for their milk at this time will determine farmers’ ability to pay mounting bills, many of which are with their own co-ops.

 

“Global dairy markets for 2020 were looking very positive prior to Covid-19, and the dairy industry would have contracted spring milk into that market prior to the pandemic hitting. This should allow co-ops to maximise the March milk payout for farmers.”

 

While cheese prices have generally held up during the pandemic, skim milk powder (SMP) prices on the Dutch spot market have fallen by €500/t to €2,000/t since the end of February. Butter has come back €300/t to €3,200/t, while whole milk powder (WMP) has fallen from €3,000/t to €2,670/t.

 

The outlook on futures markets is equally bleak. John Lancaster, head of EU dairy consulting at INTL FCStone, said futures prices for SMP had fallen to €1,900/t for the second half of the year on the EEX commodity exchange. Meanwhile, butter futures dropped to €2,800/t for July-September trades – back from a high of €3,700/t.

 

However, there was some positive news over the last week, with Chinese import activity increasing. In addition, European dairy giants such as Friesland-Campina are continuing to pay the equivalent of 34c/l for April supplies.

 

SOURCE: Declan O’Brien