I FA D A I R Y A N D L I Q U I D
MILK NEWSLETTER
Issue 5
Volume 7
May
2016
IFA PRESIDENT JOE HEALY: MILK VOLATILITY, NOT BANKRUPTCY:
PRICE CUTS MUST STOP NOW! FARMERS CAN’T TAKE ALL THE RISK
Opening the IFA/FCStone conference “Making
Risk Management Work for Farmers”, IFA President Joe Healy said the biggest challenge to IFA
for 2016, and his absolute priority, was farmers’
incomes. The pressures on dairy farmers’ cash
flow from low milk prices, high feed bills and
superlevy repayments, are particularly challenging.
“Co-ops must stop cutting milk prices. We need recognition from
industry that farmers can take no more milk price cuts, and that the
pain must be shared: farmers cannot be expected to bear this much
of the market risk and still expand milk production just to fill capacity” Mr Healy said.
“Co-ops must give stronger signals of what market demand exists at
a viable milk price, and empower farmers to make informed decisions on volumes. This is about rethinking the sector’s development strategy to share the risk more fairly.”
“After 5 years of major investment, co-op management teams and
boards must take stock and find cost savings and efficiencies in
every area of operation. Projects on consolidation, joint ventures,
co-operation must come back to the fore.”
“The dairy sector needs to equip itself to be more sustainable in the
face of volatile markets, including prolonged downturns. This must
mean equipping farmers to cope with these relatively new conditions.”
“In the last 5 years, first Glanbia, then, with the help of Ornua,
more co-ops have offered farmers fixed price contracts. These help
ensure that some farmers still receive in excess of 30c/l for some of
their milk.”
“They have also helped farmers understand the concept of hedging
– foregoing the highest prices, but avoiding the lowest. But fixed
price contracts are must not be the only option available from industry: other forms of hedging and margin insurance instruments
need to be developed, by industry with government and the EU.
There are two other important areas which can help farmers work
their way through volatile incomes: banking and taxation.”
“IFA will continue challenging banks to be more proactive and
price competitive with both cash flow and investment financing.
They must learn from the Glanbia Milk-Flex package and offer
competitive financial packages which respond to price variations.
On taxation, we need the incoming Minister for Agriculture Michael
Creed to support strongly IFA’s proposals for volatility-friendly
farm taxation. He must support our case to allow individual farmers to smooth out their incomes between good and bad years.”
After 2 years of price cuts, most farmers now receive prices below
production costs. As prospects of price improvements are some
time away, co-ops must ensure that prolonged periods of unsustainable farm margins don’t threaten the viability of the sector.
In our case study for March margins below, we look at a farmer
starting with 400,000l annual milk production in 2013, increasing
on par with national output growth. It also reflects the average
percentage of output produced in March each year, and uses the
simple average of Farmers’ Journal milk league price for March of
2013 to 2016 to assess milk value. The average production cost is
as per Teagasc, with the 2016 cost increased to 24c/l from a their
December forecast of 23.3c/l to reflect the harsh spring. This
does not include the remuneration of the farmer’s own labour,
which, together with loan repayments, can only be found from the
margin. All prices are net of VAT. What the exercise shows is
that despite
significantly
increased
output, the
reduced
milk price
and increased
costs mean
our farmer
has lost
nearly
€4000 in his
March milk cheque in
the last two years and
is now well in the
red—and this at a
time of unprecedented demands on cash
flow. The second
graph shows the margin evolution over the
same period in cents
per litre.
See all Conference presentations at www.ifa.ie/dairy
LAST MINUTE: Glanbia hold their April milk price at the March
level of 24c/l including VAT.
This is a 22c/l base price from GII, with a 2c/l co-op top-up.
The IFA Dairy Committee is lobbying all co-op boards to hold
milk price to minimise pressures on farmers’ cash flow.
Some of the speakers at the IFA/FCStone Conference “Making Risk Management Work for Farmers”
- l t r DAFF’s Brendan Gleeson, FCStone’s Charlie Hyland, Wisconsin dairy farmers Diane and Joe
Thome, IFA President Joe Healy; FCStone’s Liam Fenton and IFA Dairy Chairman Sean O’Leary
MARKETS REMAIN CHALLENGING FOR 2016 PEAK—DESPITE SOME POSITIVE SIGNS
The first GDT auction of May was a disappointing 1.4% down, after what appeared to have been a change of trend in April. However, at
20,600t, the quantities sold were 25% down on the same auction last year, and the results are mixed, with many of the price trends remaining positive. WMP, the product the most traded, saw its price firm further (+0.7%). Cheddar and rennet casein, of which only small
quantities are traded, saw price increases of respectively 1.8% and 3.5%. Butterfat and SMP were the main downers, with butter prices
down 5.5%, AMF 1.6% and SMP 3.6% - see the graph below left..
Gross EU returns (before processing costs) for the w/e 1st May were just under 26c/l. SMP prices have stabilised at €50/t under intervention prices since the doubling of the intervention ceiling, and EU WMP and Cheddar prices have been firming in the last 3 weeks.
Spot quotes in some EU member states have also increased, from admittedly low prices, in the last week: German SMP prices rose by
3.23%, or €50/t, to €1,600 per tonne; English SMP was up 4.0% to £1,300 per tonne. Other upward moves were for French, German
and Dutch whey and Dutch butter. French SMP and Dutch SMP are already above EUR1,610 per tonne—note these prices are nearly
€100 under the intervention prices. Also, stocks continue high and building, and SMP continues to flow into intervention at the rate of
19,000t and 16,000t respectively in the most recent two weeks, leading to some concern that the new increased ceiling may not cover all
of peak production. Demand continues to increase from China, where total dairy imports have increased by over 30% for Jan-Mar 16,
and
WMP
JOHN FINN ELECTED
imports
IFA LIQUID MILK CHAIRMAN
by 23.6%
Arrabawn supplier John
for the
Finn (left) was last month
same
elected to the Chair of the
period.
National Liquid Milk Committee, replacing outgoing
Chairman Teddy Cashman
STATE AID TO HELP CASH FLOW CRISIS
(right)— now Chairman of
The EU Agriculture Council last March gave member states the exthe National Dairy Council.
ceptional option to provide farmers with state aid up to €15,000/
John farms in Oranmore,
year, for up to 3 years, in recognition of the need to relieve the inCo. Galway, with his wife
come pressure in the dairy, pig and fruit and vegetable sectors.
Joan and their son Eavan. He has been the Chairman of the ArThe new Irish government must ensure that Irish farmers are given
rabawn Producer Group for the last 10 years, involved in negotiathe opportunity to avail of this measure while their income is under tions with Arrabawn management and board on contracts and
significant pressure – as could be the case into 2017.
prices. Outlining his priorities, Mr Finn said:
IFA proposes that the Irish government sets up a scheme allow- “I want to lead milk producer groups from all around the country
ing dairy farmers access to Exchequer funded interest free short in a united fight to ensure cut throat competition between dairies
term loans of 1 to 2 years, which may be used for:
and retailers is not allowed erode the milk price specialist farmers
Facilitating a 1 to 2 year repayment holiday for superlevy*
need to remunerate their higher production costs”.
Providing farmers with merchant credit debt an opportunity
“IFA has established that the cost of producing a litre of fresh
to transform it into interest free short term finance
milk and to pay the producer a modest wage comes to around
40c/l. All producers’ annualised prices for the last year averaged
Other working capital/cash flow needs on farms
The cost to the Exchequer would be minimal, only the interest cost out only 30 to 31c/l, despite retail returns for fresh milk, unlike
global dairy markets, remaining stable. This is not sustainable”.
of the loans, which farmers would start repaying after year 1 or 2.
“Input costs uniquely impact liquid milk producers: we need to see
*3,600 dairy farmers approx. are in the 3-year superlevy repayment scheme.
the low grain prices passed back in lower ration costs, and I fully
They owe a remaining total of €35.6m which is to be paid in 10 equal instalsupport IFA’s campaign to obtain more competition in the fertilisments in May to Sept 2016 and 2017.
er market with the elimination of EU import tariffs.”
Our superlevy scheme would only cost the exchequer a maximum of €2.8m, as“I will be prioritising meeting with all retailers as a matter of ursuming an annual interest cost of 4%. For farmers, however, the average outstanding liability is €9,900 to be paid over 10 instalments of €990 per month – gency to impress on them the importance of making sure that
a substantial drain on stressed cash flows. Individual liabilities vary significantly. fresh milk producers are remunerated fairly in the food chain,” he
concluded.
CellCheck Tip of the Month: Sign up today for a CellCheck Farmer Workshop!
Did you know that you could increase your net farm profit by at least 1 cent per litre by improving mastitis control? Learn how at a CellCheck Farmer Workshop!
It will help you understand the causes of mastitis and how making simple changes in your everyday
milking routine and management can improve and maintain lower SCC levels.
Workshops are delivered by teams of CellCheck-trained service providers, including a farm advisor, a vet, a milking machine
technician and a co-op milk quality advisor. The workshop lasts 2.5 hrs and is farm-based, with a mixture of classroom learning, practical workstations, and group discussion. Group sizes are small to allow plenty of discussion and questions.
The Department have confirmed CellCheck Farmer Workshops will be a component of the Dairy Knowledge Transfer (KT) measures
under the new Rural Development Programme, due to start this June. In addition to participation in discussion group meetings, Dairy KT
participants will be required to participate in a CellCheck Farmer Workshop if they haven’t done so since 01/01/2015.
With approximately 7,000 dairy farmers due to participate in Dairy KT, more than 400 workshops will be held throughout the country
over the next 2 years. Following the positive feedback and outcomes from workshops, this is a unique opportunity for farmers to
reap the benefits of better udder health!
Compiled by: Catherine Lascurettes, Executive Secretary, National Dairy and Liquid Milk Committees
Contact: Address: IFA, Farm Centre, Bluebell, Dublin 12; Telephone: 01-4500266; email: [email protected]