Milk delivery data for November from the Central Statistics Office (CSO) shows a large falloff in production for the month.

While a drop was expected, the terrible weather and the early housing of cows meant deliveries for the month dropped to the lowest level since 2017.

Comparing January with November numbers for recent years, we can see that deliveries in 2023 are 3.3% lower than 2022 and are on track to finish the year well below even the 2021 level (see Figure 1 below).

The three factors driving the drop in deliveries are milk price, weather and uncertainty around derogation and input costs.

The milk price, input costs and weather will always change, but the constraints put on dairy farmers by the derogation are by far the biggest long-term threat to milk deliveries in Ireland.

It is no wonder then that processors are incredibly concerned about the outlook for that.

Tirlán CEO Jim Bergin has been very vocal on the issue, saying that a further reduction in the nitrates limit would be “catastrophic” for the industry.

Tirlán currently processes 3.2bn litres of milk a year, meaning it takes a significant share of Irish dairy output.

Expansion

Bergin is also possibly thinking of Tirlán’s new cheese plant, which will be commissioned in the coming months and will consume up to 500 million litres of milk per year.

Speaking to the Irish Farmers Journal in December, Bergin explained that Tirlán had the supplies already to meet demand from the new plant.

However, the commissioning of it would mean that Tirlán would most likely not be sharing its milk pool with other processors in the country.

Beyond Tirlán then, input may be tightening on two fronts – reduced arrivals from farmers and a smaller amount of milk available for transfer between processors.

Investments

For those processors, particularly those who have recently made investments in capacity, 2024 could turn out to be very difficult. Those that have the highest fixed costs, especially those with significant debt levels, are most likely to run into trouble.

If a processor is running significantly below capacity, it may not be in a position to pay an attractive milk price.

They will need a larger margin to cover their fixed costs, leaving less money for the supplier. This, in turn, will put further pressure on their supply as farmers will be unhappy to sell milk at a lower price than other processors may be paying.