The outlook for the 2015 season continues to deteriorate, with all the key indicators pointing to further weakness. This week’s Eurex index values SMP at €1835 per tonne, with reports of some Skim powder selling at below the intervention buying-in price of around €1745. Meanwhile, the butter quote, at €2865 is still almost 30% above the intervention price. The Eurex quotes value milk at around 22.4c plus VAT. Obviously, the Eurex index captures the worst of market volatility on the way up and on the way down, but it is, nonetheless, a reliable indicator of market sentiment.

The Irish Dairy Board Purchase Price Index for November has dropped to 99.5, the first time the index has been below 100 since August 2012. This is suggestive of milk prices dropping into the high 20’s for the first time in over two years, and the IDB have been guiding milk prices for 2015 of somewhere in the region of 25c plus VAT. This view is further supported by both Teagasc and Glanbia warning farmers to prepare for a VAT inclusive average price of 27c for the coming season.

Meanwhile, earlier in the week, Fonterra reduced their milk price outlook for the coming season to €4.70 per kg solids. This equates to approxiately 21.8c per litre. In what is being portrayed as a shattering blow to Kiwi farmers and the NZ economy, the reduction, down from $8.65 last season, represents an estimated $6.8billion hit to the value of New Zealand’s dairy exports. The graph below tracks the Fonterra payout since 2000, and the 2014/15 forecast figure is the lowest since 2006/07.