China’s continued absence from dairy market weighs on milk prices

China’s continued absence from the dairy market is continuing to undermine a recovery in milk prices.

Despite this, both IFA and ICMSA have warned milk processors that farmers cannot afford any further cuts to milk price and believe the market has recovered.

It comes as Ornua said its returns declined again in May based of its Ornua Purchase Price Index (PPI).

It said estimated Member Co-op processing costs of 7.5cpl (excluding any allowance for processor margin) for the Ornua product portfolio implies an indicative return of 36.7 cpl, VAT inclusive (down from 37.6cpl), and blamed the fall on ‘continued weaker market returns’.

The Ornua result came after what was described after an ‘underwhelming’ Global Dairy Trade (GDT) auction last week.

The overall GDT index was down 0.9%, led by a 3% decline in WMP prices, a larger fall than the circa 1.5% dip that the futures market had projected ahead of the event.

Nat Keall, Economist with New Zealand bank ASB said dairy prices have largely drifted over recent auctions, struggling to maintain clear direction.

“The most notable feature of this week’s auction is China’s continued absence from the market.

“Looking over the last handful of auctions – and six months on from the ending of those restrictions – China’s return to the global dairy market has been modest and uneven.

“This isn’t hugely surprising – local WMP production remains strong, while domestic consumption remains comparatively subdued.

The prevailing global dairy market dynamics don’t look ‘hugely supportive’ for prices, Knell said.

“As we’ve said for some time, global dairy supply looks to be past the lows of recent years at the same moment that global growth is slowing, crimping consumption.”

However, ICMSA’s Dairy Committee Chair, Noel Murphy said that milk markets have shown real resilience in the last six week culminating in an upswing in spot prices across most products.

“There’s absolutely no reason whatsoever for any Co-op in Ireland to cut the price they pay for milk supplied in May. A look at the markets will explain why: Dutch dairy quotes saw WMP go above 40cpl for the first time since January – that’s an upswing of almost 4cpl in value over the course of those five weeks in May. The industry standard Butter/SMP mix is up over 2cpl in that same period.”