Kerry to cut by 6c/gal from January

By Darragh McCullough

Kerry Group is slashing its milk price from next January by 1.32 cent per litre (6 cent per gallon). The move will bring their 2007 price down to the same level as Glanbia plc's milk price.

A spokesman for Kerry said that management had taken the decision after a number of queries from farmers regarding what they could afford to pay for quota in the new quota exchange in December. Suppliers are being notified by the company this week.

Kick in the teeth

IFA National Dairy Committee chairman, Richard Kennedy, said that the announcement by Kerry was a major "kick in the teeth'' of Kerry suppliers "at a time of unprecedented pressure on farm incomes''.

"Kerry are pre-judging markets far too early, at a time when SMP, whey and other protein prices, all of which are critical to the Kerry product mix, are increasing very strongly,'' Richard Kennedy said.

"It is clear to me that Kerry are trying to pacify the stock market, and are quite happy to sacrifice their milk suppliers in the process. This is totally unacceptable to dairy farmers,'' he said after Kerry's half year results showed that profits dipped by €5m.

Kennedy has also called on Glanbia to roll back some of the 12c/gallon cuts implemented so far this year. He said that, "the Irish Dairy Board have increased their SMP price by €190/t since July, so that in spite of earlier falls on the butter side, the IDB SMP/butter index price has increased by 1.5c/litre (6.7c/gal) since early July.

"For milk at 3.3% protein and 3.6% fat, the IDB index currently returns approximately 28c/litre (127.3c/gal). Allowing for the current price levels of 24 to 25c/l before VAT, this leaves co-ops with processing margins in the order of 3 to 4 c/l (13.6 to 18.2c/gal).

"Evidently, many co-ops' product mixes also include products offering higher returns, which would give them better margins,'' he said.

The IFA estimate that Glanbia's August milk price of 22.6c/l before VAT leaves them a much higher margin of 5.4c/l (24.5c/gal).

Weather conditions

Meanwhile, the EU is currently running at almost 2% under quota due mainly to extreme weather conditions on the continent so far this year. A particularly severe winter has been followed by an equally harsh summer in many of the 25 EU member states. While the UK and Sweden have struggled to fill their quota in recent years, most EU countries have been at or over their quota requirement.

In addition, national quotas for 11 of the original 15 EU member states are to increase by 0.5% this year, but it is looking increasingly unlikely that they will fill them, according to the general manager of the Irish Dairy Board (IDB), Nicholas Simms.

Skim milk powder

Simms also said that California has revised down its projected increase in milk production from 5% to 3.5% after summer temperatures soared to 46 degree C on many farms. This will increase the price of product such as skim milk powder (SMP) and butter on international markets.

This is borne out by the fact that market price continues to ignore the 15% drop in intervention price for SMP since the start of the Mid-term Review. Markets for butter do not appear to be as strong with significant stocks of butter available within Europe still and another drop in intervention price due within the next year.