Milk prices may rise as EU output expected to slow

European dairy farmers will produce much less milk over the rest of 2016 as the price crisis finally bites, according to fresh forecasts. 

A sharp slowdown in the growth of milk deliveries, especially in Ireland, Germany and the Netherlands, would brighten the prospects for farmgate prices. 

The European Commission’s milk market observatory (MMO) has tweaked its forecasts and now expects EU production between April and December to be 0.4% down on the year.

This is mainly down to cow culling, as even countries with ambitious plans for growth cannot bear the pain of low milk prices much longer.

Milk deliveries in the Netherlands were 33% higher on the year in the first quarter, but will slip back to just a 2-3% rise for the rest of 2016. Ireland’s growth rate will drop from 9% to 1% and the UK will switch from a 2% increase to a 3% regression over the same period.

See also: Irish farmers get access to interest-free cashflow support

AHDB Dairy senior analyst Luke Crossman said there was finally a bit more optimism around dairy markets.

“We have gone through the bottom and we have turned a corner,” he said. “Nothing is going to change for a while. This should not be viewed as [saying] farmgate prices are going to jump in the next six months or so.” 

Supply was also the focus at a meeting of German regional farm ministers this week. The country’s federal agriculture minister Christian Schmidt told representatives any financial support for producers would have to be linked to limiting how much milk they pump out.

Last month the German government promised €100m (£79m) of aid, plus extra money from the EU. 

The MMO expects production in Germany to turn from a 2% rise in the first quarter of 2016 to a 1% decline in the rest of the year. 

The EU’s forecast revisions follow a series of more positive signs in the global dairy markets, after a disastrous two years.

Last week’s benchmark Global Dairy Trade auction saw a 3.4% rise in prices — following a healthy 2.6% increase in the previous sale. 

In the UK, milk production is now running 2.7% below last year’s levels, at 43.2m litres/day. 

But farmers’ returns have a lot of lost ground to make up: in the past fortnight most major processors announced further price cuts.

The Dairy Group’s indicator, the market price equivalent, rose in May for the first time since September 2015. The tracker, which converts commodity values to farmgate prices, moved up 0.32p/litre to 22.68p/lire. 

The consultancy’s principal consultant Nick Holt-Martyn said European markets would firm through the winter, if the large stocks of dairy products held in intervention were kept off the market.

“This will take three to six months to feed back to farmers, but by spring 2017, upward movement should be visible,” he said.