Markets continue to bounce along the bottom as trade resumes for the new year. Eurex quotes value butter at €2810, almost exactly the same level as 12 months ago, but down from around €4000 in early 2014. SMP values are at intervention level, with €1673 being quoted yesterday. Those values, if expressed in a milk price would equate to between 20c and 21c per litre.

The current and continuing market weakness is a function, as always, of a mismatch between supply and demand. The benign production conditions over the recent season, coupled with low input costs and milk prices which were slow to drop, have prompted extraordinary, and unpredicted milk supply growth, particularly across Europe.  Amongst Europe’s larger producers, only Italy has seen a production decline, with significant growth in the Netherlands, Belgium, Germany, Poland, the UK, and even Spain. This resulted in an increase, since April 1^st, in European production of SMP by 8.7% and butter of 4.8%. In total, between the end of June 2015 and Jan 4^th 2016 46,639 tonnes of SMP were offered into intervention. This should be considered alongside 71,489 tonnes of SMP in either the 210 day or 365 day private Storage Aid Schemes. This total of around 118,000 tonnes of powder is equivalent to around 1.3 billion litres of milk (skim), or around 0.85% of European production. With Europe running at around 2% up on production, it is apparent that nearly half the growth is being put into either Intervention or PSA. It is clear that the market will remain weak until either consumption grows in response to low prices; difficult, given low oil prices and poorer developing countries, or supply growth eases significantly.

The Ornua Purchase price Index continues to weaken, with a figure of 86.6 in December. This represents a record low since the Index was established in January 2011, but it suggests a milk value, on the basis of the Ornua basket of products, of around 5c greater than the commodity markets are currently returning. Meanwhile Ornua has announced its intention to pay €15 million cash bonus to its Co-op members. Yesterday, (Jan 13^th) they announced that, following the recent disposal of DPI Specialty Foods they will pay an additional cash bonus of €15m to member processors. They sold a majority stake in DPI, a US speciality foods distribution business, in December 2015 and the €15m will be funded from Ornua’s gain on that disposal.

The additional cash bonus will be paid in April/May 2016 and will be in addition to the normal annual cash bonus paid by Ornua.

By TJ Flanagan

Dairy Policy Executive