Brighter dairy days on the horizon

Milk prices are down by almost 25 per cent since the start of the year and while there is no return to the record prices that farmers received in 2022, there is some light at the end of the tunnel.
Jasper Endlich, a market analyst with the Vesper market monitoring group, forecasts a rising trend in milk prices in the second half of 2023. While peak production will have passed on Irish dairy farms by the time any price lift manifests itself in higher prices to producers, it is reassuring that the bottom of the market may have been reached.
There are expectations, according to Jasper, that the current buyers’ market may be somewhat reversed in the coming months, driven by reductions in European milk output. In the longer-term, China’s ambitions to become self-sufficient in dairy creates uncertainty around the potential demand for additional milk production globally. With New Zealand at or beyond its long-term production ceiling and the US dairy sector assailed by labour and water challenges, there seems to be potential for incremental growth, at least, in the Irish dairy sector. An increasing global population, at least for the next 30 years, allied to higher average standards of living, all point to more demand for dairy. 

Global update

The Vesper representative provided seminar attendees with a detailed update on global milk supply, which contained huge variations across the continents. In Asia, the Chinese milk-production sector powered ahead with an 8.7 per cent increase, year on year, for 2022. In New Zealand, despite a decent production season, after a very sluggish weather-tempered start to their season just closing, the out-turn for the year shows an almost 4 per cent supply reduction. Latin American milk production decreased by 3.17 per cent for 2022. Meanwhile, nearer to home, the EU was marginally back on the previous year. Likewise, the US milk-production sector was stagnant last year, delivering the same volumes as it did in 2021. Higher production costs, especially in feed, fertiliser and energy, sapped production potential during 2022, resulting in supply and demand coming into a more balanced position. The cost squeeze and lower production in some regions drove dairy product prices to historic highs, dampening consumer demand. 

Positive outlook

It was at this stage of Jasper’s presentation that a more positive outlook for international dairy markets began to manifest. On the demand side, he noted that the big dairy-importing regions are becoming increasingly active in the global dairy market, with global competitiveness increasing to secure exports. Putting on his official forecaster’s hat, he ruminated on what will happen in the coming months. He believes that milk deliveries are likely to be lower again this year in the EU. Pay-out prices to producers will decrease further to settle around a 40c/kg average in Europe. On that basis, Irish producers may have seen the last of the current round of price reductions. That bottoming out of milk prices, Jasper indicated, should return prices, in general, to historical averages. That would not be a positive medium-term proposition given sharp deterioration in production margins, driven by high input costs.
Of course, there is the potential for further falls in energy prices as global energy production weans itself away from Russian gas supplies. That, in turn, would drive fertiliser prices down further. They have already reduced significantly from their heady highs, exacerbated by the war in Ukraine. Some of the high fertiliser prices were caused by high gas prices and limitations on availability, and a consequent mothballing of fertiliser manufacturing plants in Europe as demand for fertiliser waned because of those high prices. If some measure of normality returns to the energy sector, in terms of supply and price, then the production cost squeeze on milk production should also ease. The summation of Jasper’s dairy market analysis was that there will be a slow increase in prices as we move through the second half of 2023 and into 2024. 

Bord Bia also took the opportunity at the seminar to outline refinements to its Origin Green Programme. Mick Houlihan, senior manager, agricultural sustainability, explained that Bord Bia is currently working on the development of a primary producer standard. So, while standards are in place for dairy, as well as beef, lamb, pigs, poultry and horticulture, the organisation is now engaging in a process of combining all the individual sector standards into one primary-producer standard. He cited greater efficiency when the process is completed in terms of certification of farms. In addition, he affirmed that efficiencies at farm level will be delivered from this standardised system. Multiple schemes are necessary because many farms have multiple species and enterprises on their farms. At the heart of it all, the Bord Bia sustainability manager insisted, are the three core values, including animal welfare and husbandry, traceability and product safety, and sustainability.