Brace for stormy dairy conditions in 2015

Farmers’ milk prices will not recover until importers start buying again or the weather forces production to slow, analysts have warned.

Milk supplies around the world continue to outstrip buyers’ needs and the outlook remains stormy for most of 2015.

See also: Five charts that explain the milk price crash

Among the biggest exporting nations, New Zealand production is up 4.5% on the year, Australia is running 6% higher and the USA is 3.8% above 2013 levels.

New Zealand dairy co-op Fonterra this week dropped its forecast farmgate price for the 2014-15 season by another 11%, making it more than one-third lower than last year.

Only three-and-a-half months of European milk quotas remain and the countries most threatened by a superlevy fine, like Ireland, are the ones looking to expand after April.

Principal consultant at The Dairy Group Nick Holt-Martyn said the market seemed to be bumping along the bottom, with powder prices up one week and down the next.

He said prices would stay low unless production was reined in by low prices discouraging farmers from expanding or the effects of an El Niño. Extreme weather caused by pressure changes in the Pacific every few years could pull back production in Australia and New Zealand.

“Twenty-fifteen is going to be a difficult year,” he said. “Demand is not going to be rampant and your supply is certainly rampant.

“Apart from Europe, which has a quota issue for the next three months, what is the incentive for the other countries to slow production?”

AHDB/DairyCo acting senior analyst Luke Crossman said output might ease in the second half of 2015 as low prices cause farmers to cut cow numbers or change feed patterns. But prices would stay depressed due to Russia’s ongoing ban on Western imports and buyers, particularly from China, staying away from the market.

“This pressure is likely to continue until the current situation of global supply and demand changes,” Mr Crossman said.

In the UK, farmgate price pain continued this week as Muller Wiseman dropped its headline price by 1.2p/litre to 25.9p/litre.

Promar senior consultant Tim Harper said lower seasonality payments in the next few months would see farmgate prices ease, even if headline prices were unchanged.

Farms with high costs of production were most vulnerable, he said.

“It is the milk price after seasonality that is what gets paid into the bank and, with cashflows being very tight on many farms, this will increasingly be what governs decision-making on many dairy farms,” Mr Harper said.

The European Dairy Association this week welcomed an EU report that said “milk will remain the white gold for the next decade”.

The Commission said EU production would increase steadily and the average milk price would rebound after a difficult 2015 to stabilise at about €350/t (28p/litre).