The PPI value for June was 109, a 4.4% jump on the previous month. This is equivalent to 31.1c/l excluding VAT, based on Ornua’s product purchase mix and assumed processing costs of 6.5c/l.

"The June 2018 Index reflects stronger returns in the month for butter and powders," an Ornua spokesperson told the Irish Farmers Journal.

The index is now catching up on last year's strong levels as co-ops begin to set milk prices for June this week.

IFA dairy chair Tom Phelan noted that the average Irish Farmers Journal milk league price at a similar PPI level one year ago was 32.3c/l excluding VAT. He called on co-ops to add at least 1c/l to last month's prices including any existing supports.

“Not only do markets justify this increase comfortably, farmers need it very badly after an exceptionally challenging year for fodder and for cashflow,” Phelan said.

The PPI should not be seen as a maximum speed limit but instead as a minimum target

"The PPI should not be seen as a maximum speed limit but instead as a minimum target," said ICMSA dairy chair Ger Quain. “The price paid in June is of supreme importance given the costs associated with the six months just gone. The current drought conditions being suffered countrywide are being described as the most serious in a generation," he added, also calling on co-ops to raise milk prices this month.

The European Commission expects EU milk prices to rise in the second half of this year as butter demand outstrips dwindling supply, including from Ireland, and the market for skimmed milk powder improves.

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European milk prices to rise