The decline in dairy markets, which has been continuing almost uninterrupted for two years, now, has long since exceeded crisis levels.

European EEX indices suggest butter prices of €2797 per tonne and SMP prices of €1663 per tonne. Those values, if they were actual product prices would put a value of just over 22c per litre incl. VAT for milk with standard Irish constituents. Predictably SMP has now started to be offered into intervention, with, as of last week, 2670 tonnes having been bought in from Belgium, Lithuania and Poland.

The Ornua Purchase Price Index for July dropped from 95.3 to 91.8. The Index is currently at the same value as in July 2012, although other indices, such as EEX are currently 15% lower than at that time. This relative strength in the PPI compared to core commodity quotes suggests the strides made in the past three years in moving the Irish product base towards greater value added.

The Fonterra GdT auction continues to exacerbate the global market weakness, with the 4^th of August event witnessing a further 9.3% drop in the Weight Index and a 10.3% drop in WMP prices, now lying at a lowly $1,590 per tonne.

Meanwhile NZX report that Fonterra are set to pay $4.85/kg of milk solids this season, but this includes a 50c loan, payable when milk prices next go above $6/kg.  The current milk price is $3.85/kg with an expected dividend of 40-50c plus an extra 50 cents for each fully shared kg giving a total of $4.85/kg. The 50c top-up is an interest-free loan which farmers will have to apply for. A continued imbalance in supply and demand was the cause of the milk price cut from $5.25/kg MS to $3.85, chairman John Wilson said, adding that Fonterra was uniquely placed to help its farmers because of its underlying strength. “This support is all about standing together as a co-operative and using our collective strength to help our farmers get through these tough times,” he said.

The first payment will be made in October for June to December and will continue until May. Payments totalling 50 cents per shared-up kg over the season will be phased from October. The support for the first half of the season (June to December) was estimated to cost up to $430m, depending on take-up rates and would be funded by one-off savings generated by changes the business was making, such as improving working capital.

The US All-Milk price has been reported by the University of Wisconsin, Madison to be $16.90 for June. This price, however, is not low enough to trigger support under the Dairy Margin Protection programme, as feed costs for the month have been calculated to be $8.74 per 100 lbs, so the June margin is at $8.16, or just over the $8 that can be insured. Since January of this year margins have hovered at around the $8 level, resulting in little or no pay out to those farmers who chose to insure an $8 maximum margin.

By TJ Flanagan