A significant realignment of milk prices to reflect market realities was signalled by several processors at the end of 2022. The reality is that, for several months, milk price was out of kilter with international dairy markets. Teagasc’s 2023 outlook report predicted Irish milk price would decline by approximately 15 per cent, on average, to about 49c/L this year.
Processors have now acted; if not in unison, then certainly with a degree of collective understanding that market realities cannot be ignored indefinitely. The 6c/L reductions for January production imposed by Lakeland and Kerry will be followed by the other major milk processors in the coming days. The reasons provided for the significant price reduction are similar – reduced demand, sluggish exports, and general food price inflation impacting on consumer sentiment and buying power. Milk production cost inflation has eased somewhat from the highs of 2022 and the hope is that the current milk price reductions may be a sufficient correction. Producers will certainly hope so as, despite some easing of production costs, margins have reduced significantly.
On a somewhat optimistic note, the Global Dairy Trade Price Index rallied this month after experiencing several falls since last October. The latest index shows butter, cheddar and whole milk powder (WMP) registering modest low, single-digit price increases while skim powder prices were flat. In general, international dairy commodity prices are well back on the heady highs of mid-2022.
A statement from Lakeland provided the following: “The markets started turning towards the end of 2022 and have weakened very significantly in recent months with growth in global milk supplies continuing. High rates of inflation are affecting overall market sentiment. Demand has reduced, buyers have held back, exports have slowed and prices have eased considerably. This will have a continuing impact for all processors during 2023 and will continue to affect milk price, in line with weaker market conditions, over the coming months.” However, the processor vowed to ‘pay as competitive a milk price as possible, in line with market conditions’.