Global factors are crunching dairy sector numbers as farmers prepare for ‘mixed’ year ahead

The Chairperson of ICMSA’s Dairy Committee, Noel Murphy, said that there was a degree of pressure on ‘spot prices’ but he was confident that all significant underlying elements were still in a positive place, and he thought that the traditional ‘early’ purchasing patterns favoured by Far Eastern buyers would carry prices through to Q2 and the run-up to Peak at or just below current prices.

“There are actually two factors at play here: the first is fundamental supply-demand equilibrium and we think this looks okay; US production is going ahead of predictions – as are some EU producers – but there’s nothing on the demand horizon that would indicate a fundamental falling-out-of-balance,” he said.

“The pressure on spot prices over the last period is not indicative of a trend and we expect the Chinese buyers to step in early in the New Year and fix their supplies. Prices may come back slightly but we think that the market looks solid into 2023 and we’d be reasonably confident that the figures look reasonable in the run-up to 2023’s Peak Production.”

Karol Kissane, Senior Executive Dairy at the IFA, agreed there are some downward pressures on future markets for products into 2023.

“This is most pronounced in EU indices. However, the most recent results from the SGX (Singapore Exchange) and the GDT show prices firming,” he said.

“The downward pressure in the EU may be due to companies attempting to manage their balance sheets through to year-end as they don’t want large balances of stocks on their books and are selling down product.

“With reduced supply on a world level, the supply/demand fundamentals should support a strong dairy price into 2023.”

Mr Kissane also said that the US is marginally up on supply but the EU, New Zealand and Australia are all behind 2021.

“Demand is subdued slightly at the moment, but once China returns to the market, this could change very quickly.”

EU dairy exports decreased between January and September 2022 for all dairy products, with the big movers being SMP (–15pc) butter (–8pc), WMP (–20pc) and wheypowder (-11pc).

Total EU exports in the first nine months of 2022 were back 10pc in volume, but the value of these exports is 17pc higher than in 2021.

New Zealand’s milk production in September 2022 was back 3.2pc and is down in June-September 2022 by 3.7pc compared to 2021/22 season.

Speaking from the European Dairy Association convention in Madrid last week where EU and global outlook for dairy was discussed, Conor Mulvihill of Dairy Industry Ireland said that it looked like 2022 would be the first year in 13 that Irish dairy would not see positive growth and he predicted the only reason Irish dairy would not be behind 2021 production would be because of the strong backend of the year driven by good weather and farmers milking on.

He said there were positives and warnings for global dairy outlook at the EDA convention, including the CCO of the dairy giant Arla Peter Giørtz-Carlsen saying that lack of clarity on environmental policies across Europe particularly are leading to slowness in investments on farm and in factory which is hindering growth.

Giørtz-Carlsen also said that the UK was now in recession with grocery inflation rates running at 19pc and that would burn off demand for all food categories including dairy.