With milk flows crashing down in some regions, milk prices have for the first time in 24 months started to increase in Ireland and the UK. This week the Global Dairy Trade (GDT) auction prices on average lifted by 12.7%.

Demand issues such as the extended Russian ban, falling oil prices, building intervention stocks and Brexit uncertainty appear to have had much less impact on milk price recovery.

1. Supply down

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The top five dairy exporting regions cumulatively produced less milk in May than one year ago.

  • UK: The UK has experienced very poor milk prices for well over 24 months at this stage, and for many farmers cost of production is much higher. Inevitably, milk supply crashed as those farmers struggled. Collections were -7% year-on-year (YOY) in June and -1.7% year-to-date (YTD). They are now in line with 2013/2014 levels. July collections have fallen by close to 10%, as farmers respond to low prices.
  • Other big EU dairy players: France is down 0.4% week-on-week for end of July. Germany is down 2.3% for the same week compared to the year before.
  • Other global players: New Zealand, especially the North Island, had a very wet start to the new milk production year, so early season production is not up on last year. Also of course record low prices compared to the last number of years mean farmers are reducing supplement feeding.

    • Australian milk supply has been sliding since CEO of the largest milk processor Murray Goulburn left over milk pricing issues and this, coupled with drought in parts of New South Wales, has reduced milk supply by as much as 9% for the month of June compared to the previous year.

    South America, especially Uruguay and Argentina, had a very poor spring, as torrential rain flooded vast areas. Milk supply was significantly reduced as a result.

    Listen to a discussion of the positive milk price trend with Irish Farmers Journal dairy editor Jack Kennedy in our podcast below:

    2. Dairy cow culling increased

    Every significant dairy-producing country has seen a large increase in the number of cull cows sent to the factory this year.

  • Across the EU cow beef slaughter numbers were up 5.2% between January and April compared with the same period in 2015, despite cow prices on average being 10% lower.
  • The cow kill was up 3.5% in Ireland, up 18.6% in Northern Ireland and up close to 10% in the UK.
  • In the large EU dairy countries – Netherlands, Denmark, France and Germany – the cull cow slaughter numbers are reportedly up well over 10% compared to the same period last year, with some reports suggesting the cull rate is almost 50% more than previous years for the same period.
  • NZ cull rates have been ahead of normal also, with Australian culling for the season +44% year to date.

    • 3. EU intervention and aps continue to support markets

    The intervention option to some extent puts a floor on prices. Also aid packages that reward restricted supply will potentially compensate struggling farmers who have much reduced supply over coming months. As supply eases around Europe, less product has been bought into intervention and storage.

    4. Local competition

    Lakeland was the first to increase prices in Ireland last week, so those processors in the very near catchment area are forced to respond by their members. Glanbia was next to increase prices, and others have followed suit this week. Admittedly, all processors that have so far announced price increases for July were coming from the bottom of the league, so there was room for improvement.

    In the UK, the result of the supply crash has been a massive increase in UK indicator and spot prices in the last two months. Actual milk price equivalent (AMPE) has risen from 16.8p/litre to 23.4p/l. Spot prices increased well ahead of that, from 14p/l to 16p/l to 25p/l to 29p/l.

    5. Butter the saviour

    While milk powders and proteins were hailed as the future a number of years ago, it’s butter this year that has significantly helped milk processors hold price.

    EU cumulative production remains strong (+11.5% YTD to May). EU butter exports have performed well (+37% YTD to May), with volumes to Saudi, Egypt and the US particularly strong.

    US prices are higher than EU and NZ prices.

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