It’s still early days in 2019, but the current outlook for milk prices this year is quite stable despite, the significant uncertainties presented by a no-deal Brexit.
Right now, dairy markets are in a healthy balance between supply and demand and dairy commodity prices are generally steady across the board.
When taken together, this paints a positive outlook for Irish milk prices in 2019.
European butter prices are in a healthy position right now and much more stable than the volatility we’ve seen over the last two years, when prices spiked to highs of €7,000/t.
Farmers might assume that record butter prices are a good thing, but such volatility has severely hit demand for butter across Europe, with butter consumption in Germany down 15% over the last two years.
Spot prices for butter reported to the Dutch Dairy Board this week stood at €4,360/t, although there are reports of Irish butter being sold at much cheaper levels just above €4,050/t.
On cheese markets, prices across Europe are stable, with cheddar priced above €3,000/t. Mozzarella prices have risen to €3,100/t in the last week.
The big difference in 2019 compared with last year is the much improved health of milk powder markets.
The clearance of the European Commission’s stocks of intervention skimmed milk powder (SMP) has seen spot market prices for freshly produced SMP hit two-year highs of just under €2,000/t.
Prices for whole milk powder (WMP) have also risen in 2019 to hit €2,900/t.
Supply and demand
On the demand side of dairy markets, the Chinese appetite for dairy continues to grow. For 2018, China imported 2.8m tonnes of dairy product, which represents an 8% increase on 2017 imports.
According to Ornua, this was driven by exceptionally strong demand in the final quarter of 2018 for WMP and SMP.
However, butter, whey and infant formula demand has been weaker.
On the supply side, milk output across has Europe has been slower than expected in the early weeks of 2019.
This trend towards lower milk production among Europe’s big producers has continued into the early part of 2019
In Germany, the largest milk producer in Europe, milk production was down 1% in the last three months of 2018.
In France, the second-largest milk producer in Europe, milk production steadily fell in the second half of 2018. From October to December, monthly milk production in France was down between 3% and 4%.
There has also been a sharp reduction in milk production in the Netherlands in the last year due to significant cow culling to meet new phosphates regulations.
This trend towards lower milk production among Europe’s big producers has continued into the early part of 2019 and there is less milk being produced than expected.
Lower milk output in Europe, coupled with steady demand, has seen milk prices react positively in regions of Europe.
FrieslandCampina, the Dutch dairy co-op, increased its guaranteed milk price for February by 1c to 38c/litre.
This is the highest guaranteed milk price paid for February milk by Friesland in five years.
Arla, the Danish dairy processor, announced last month it was holding its February milk price for UK dairy farmer suppliers at just over 30p/litre (34.5c/litre).
Having cut its price for November and December milk, Arla said it was holding its February milk price due to improved returns from dairy markets in early 2019.
The Danish co-op said it had benefitted from stable butter prices and rising returns for SMP and cheese.