Falling prices hit milk output

Prices for dairy commodity products have continued to fall on world markets in recent weeks.

But in Australia, the extreme temperatures in Victoria – where almost 70% of Australia’s milk is produced – will put this year’s predicted 1% rise in national milk production in serious doubt.

In both New Zealand and the USA, falling profitability is putting the brakes on milk production. In the USA, profitability in 2009 is predicted to be the lowest since the 1980s. As a result, output is predicted to grow by only 0.5% in 2009, compared with 2.2% in 2008.

In New Zealand, milk production is 4% above last year. But there are reports that some farmers that supplement feed are drying cows off early as a result of the cuts in milk prices. This may lead to annual production being at a similar level to 2008 by the time the season ends in June.

In Europe and the UK, much market activity is on hold until intervention opens on 1 March. Unlike skimmed milk powder, it is expected the initial 30,000t limit for butter into intervention will be met on 1 March at a predetermined price of €2218/t. After this, prices and volumes will be decided by a fortnightly tendering process.

In January 2009, average EU butter prices were €750/t above world market levels, suggesting that even with the €450/t reinstated export refund, butter export volumes from the EU will continue to be low at least for the short-term.

In the long-term, many in the industry will be hoping that the predicted global decline in output will be sufficient to help world butter prices rise to a level where EU butter exports will be competitive, albeit with export refunds, in the second half of 2009.

But with the market indicators IMPE, AMPE and MCVE standing at 19.9p/litre, 20.7p/litre and 24.55p/litre, respectively, for January, we may see further pressure on farmgate prices before the markets rise again.