Finally we are seeing dairy markets begin to trend in the right direction. As Jack Kennedy reports on page 3, the Global Dairy Trade auction prices increased by 12.7% on Tuesday. This comes on the back of a 6.6% increase at the start of the month. Encouragingly, we are seeing demand for powders improve alongside ongoing strong demand for butter and cheese, particularly from within the US.

As Jack Kennedy reports on page 12 the sustained period of low prices is forcing structural change at farm level. Across the EU, cow slaughterings are up 5.2% on last year, with many of the large dairy-producing member states seeing cull rates increase by 10%. It is encouraging that culling rates in Ireland appear to be one of the lowest across EU member states – perhaps a strong indicator as to the resilience of the grass-based model.

A similar trend is evident at a global level, with cull rates in New Zealand running ahead of normal, while in Australia a combination of record beef prices and drought conditions has seen cull rates up 44% on the previous year. While access to cheap grain and increased yield per cow continues to underpin production in the US, overall the top five dairy exporters cumulatively produced less milk in May than last year.

On the demand side, butter and cheese markets remain strong; interestingly appearing to be benefiting from low oil prices in the US and the subsequent increase in consumer spending power.

Similarly, as the world’s largest oil importer, lower oil prices appear to be reigniting China’s appetite for dairy products. Imports of whole milk powder (WMP) during June increased by almost 120% year on year.

While there is no doubt that the supply and demand pendulum is starting to shift back in favour of farmers, optimism at this early stage should be tempered. As Jack Kennedy highlights, a number of challenges remain in the markets that cannot be ignored: uncertainty around Brexit, low grain prices driving US production, low oil prices impacting on demand from exporting regions, an overhang of powders in the market and uncertainty as to just how resilient markets are to any price increase.

The price increases we have seen for the last three months have yielded a gross return for the Irish product mix before processing costs of about 30c/l. Assuming a processing cost of 4c/l to 5c/l, this would be equivalent to an early August farmgate milk price of 25c/l to 26 c/l excluding VAT and not 22c to 23c/litre excluding VAT, which most Irish processors are paying.

The recent 1c/l price increase announced by some co-ops over the past week is of course welcome, but there is obvious scope for this upward trend to be continued in the months ahead. A positive GDT result on 6 September will certainly put pressure on co-op boards to push ahead on price.

Of course there is a processor argument that, with contract prices agreed at this stage for the third and possible final quarter of the year, the scope to lift farmgate price is restricted. However, as Eoin Lowry reports on page 17, we see Glanbia having maintained strong margin performance during the market downturn, as was the case with the Kerry Group. Left to carry the full brunt of the market collapse, farmers are right to demand that they see the immediate benefit from improved markets.

Looking ahead, there remains significant uncertainty in the market. In such an environment, farmers cannot afford to lose focus on the need to plan ahead in relation to cash-flow management and expenditure. It was clear over the course of the past two years that farmers who planned ahead and prepared for tougher times were in a much stronger position than those who did not adjust the production system or revise expenditure plans.

Meanwhile, the positive tone creeping into the market should see no let-up in the Government’s commitment to tackle the cash-flow challenges at farm level. While the German government has agreed to match the EU support package for farmers, we note that the Irish government continues to drag its heels at a time when farmers need certainty around cash flow.