Dairy market gloom

Lakeland Dairies yesterday (Wednesday) cut their August milk price by 2 cent per litre and there are fears that other processors are set to follow the same downward trend. The move follows last Friday's €100 per tonne cuts in the Irish Dairy Board (IDB) butter and skim prices.
Meanwhile, it was confirmed this week that profits for 2008 at the IDB will be sharply down on previous years and the traditional bonus payment to processors is now in serious doubt.

The IDB paid a bonus of €6m to milk processors for 2007, while the 2006 bonus was €11m. Conor Ryan, chief executive of Arrabawn co-op, said he would continue to push the case for a bonus payment from the IDB as it was an important contribution for co-ops trading heavily with the board.

Arrabawn are due to set their August price today.

IDB chief executive Noel Coakley warned that a combination of poorer market returns, higher financing costs and exchange rates will have 'a serious impact' on the IDB's performance in the current year.

Furthermore, consumer reaction to 2007's higher prices has adversely affected returns, with sales of Kerrygold butter in the crucial German market down 12% on previous year levels. This has traditionally been one of the IDB's main profit centres.

Noel Coakley explained that the IDB's financial performance was severely affected in the first half by the carry-over of expensive product purchased in 2007. This was sold into depressed markets at a substantial loss.

The IDB has now changed its procurement policy to avoid a repeat occurrence.
The timing of the announcement will inevitably be seen as preparing farmers for a milk price cut.
However, Coakley said: "it is important that all dairy industry participants are aware of the market realities''. He added: "Market conditions across all products have weakened considerably from the extraordinary heights of 2007.''

From their 2007 peak, he said that official quoted price for butter is down 39%; skim milk powder 45% and whole milk powder 35%.

Irish dairy farmers can only hope that the recent strengthening of the dollar and slowdown in US production growth may help our position.