Irish farmgate prices will finish this year at around 31c/litre. Glanbia has effectively announced that already, setting its September price at 30.5c/litre including VAT and saying no further changes are likely.

The Irish Dairy Board (IDB) Purchase Price Index (PPI) for September was 110.2. This points to gross returns of over 38c/litre for milk sold through the IDB. After allowing 6c/litre for processing costs, it points to a VAT-inclusive September price of around 32c/litre.

The main driver of market weakness is supply, with output in the key exporting regions up by a very strong 4.4% in January to July.

The USA, where prices remain elevated, is an increasingly important powerhouse on global markets. Latest figures show that September 2014 milk production was up 4% from the same month last year.

Prices rose by 1.4% at last week’s Global Dairy Trade auction. However, auction prices need to rise significantly to even allow Fonterra pay its current low forecast, as it includes an assumption that prices will recover.

China is key, particularly to New Zealand. They have slowed the pace of their demand growth, affecting global buyer sentiment.

Political events could affect prices – protests are likely in Britain and elsewhere as farmers feel the pain of farmgate prices below the cost of production. The EU action in response to the Russian ban has been poor – a lift in the EU intervention price would set a clear market price floor and could change buyer sentiment.

Exchange rates could also help – the weaker the euro becomes against the dollar, the cheaper European product becomes for dollar buyers (the majority).

It will probably take six to 10 months for the lower prices to curb supply and increase demand – at present both sides are not fully seeing the market signals. Demand should expand on the back of greater affordability.

Given our seasonality, the timing of the price recovery is crucial. Rabobank forecasts that it will be the third quarter of 2015 before market balance is restored. Who knows what will happen with the Russian ban? In response to falling prices, will global dairy farmers use cheap grain to pump out more milk, or cull cows?

Weather

And of course the weather. One of the key factors behind current dairy market weakness is that, apart from the drought in parts of the USA, the weather has been driving rather than hindering global milk supply for at least 18 months.

We hate wishing ill on other farmers, but a “weather event” in a major dairy-producing region is needed to curb supply and restore market balance.