Mansel Raymond and Rob Harrison attended on behalf of the NFU with farmers from across Europe sharing information on the market situation, the Commission presenting their short and medium term outlook for the sector, and a robust discussion on market intervention tools and risk management tools.
Market situation
Germany
Production is down 1.5% and average milk price has just dropped under 30c/l with a variation between the North (28c) and East (32c). Farmers have seen a 10c/l drop in milk price over the year. There is an expectation that the market will remain weak.
Baltics (Latvia, Estonia, Lithuania)
Worries that smaller scale farms will leave the industry as they are receiving milk prices around 12c/l. Average farmgate price is 23c-24c/l with average production costs around 30c/l.
Denmark
Finished last year 1.8% over quota. Production is up on the year and dairy cow numbers are up. Milk price around 31.4c/l.
Portugal
Production up around 5% but prices are down to 29-30c/l. Milk is not being picked up in parts of the country.
France
March price stable at 30c/l. Production just below last year’s production. Contracts are tying farmers to volumes.
Commission view
Overall EU production was down 1% in January-February 2015, but is now rising post quota and expected to rise above last year’s level soon. The average EU price was around 31c/kg down 20% on February 2014.
EU cheddar is now the most competitive on the market. The value of the € is down 19% against the US$ and the US butter/cheese prices are higher due to high demand and low stocks.
EU exports are down 1.5% but while exports to China are down, the overall market share held by the EU is up. The Commission recognised that there are a range of milk prices being paid to EU farmers from a low of 12c to high of 44c
Short to Medium Term Outlook Presentation
Short term
- So far no explosion in EU output
- Russian ban was for one year and assumption it will be lifted
- Growing internal market for cheese and whey powder
Medium term
- Milk is "white gold"
- EU growth 12m tons in ten years
- Concentration of milk in North Eastern Europe - Ireland, UK, France, Germany, Denmark and Poland as farmers and processors have invested heavily. Cheese and powder are the main products.
- Increase in consumption over population growth
- EU to supply more of world market
- Middle East South East Asia and Africa to be growing markets
Private Storage Aid (PSA)
PSA was opened in response to the Russian ban in August 2014 and has now been extended until September 2015. Butter stocks are currently at 40,000 tonnes (3% EU production) with 71,502 tonnes having been submitted this year in total and 176 tonnes from the UK.
SMP stocks are at 16,000 tonnes (2% EU production) with annual total submitted of 25,000 tonnes. Member states can individually decide when to sell product but it must be done in a cautious manner so as not to effect market.
Butter and cheese stocks are at normal levels but SMP high and giving cause for concern, as the extra SMP has been produces as processors move away from cheese to avoid storage cost.
The cheese PSA facility closed early with over 100,000 tonnes submitted and around 20, 536 tonnes remaining in storage.
External trade
Priority alternative markets identified by the Commission as Brazil, Chile, Columbia, Peru, Mexico, Vietnam, Turkey, India, US, Canada and China.
Update on US trade negotiations
We are up to the 9th round of negotiations on the US-EU trade deal (commonly referred to as TTIP). It looks as if the US Senate is to adopt a fast track deal to stop Congress interfering in details. As both US parties are split on the trade deal and primaries are due in January it is likely that any deal will be decided upon under the watch of the next President.
Other more technical problems include getting the EU agreed as single entity member state, the ongoing EU GM ban and the acceptance of EU geographical indications (GI).
Risk management examples
US margin Protection Program
Jim Mulhearn, Chair of US National Milk Producers Federation gave a presentation on the above program. In its first year 54.6% of farms have joined the scheme and the margin is currently estimated at $7.60. It takes into account the average milk price and the average feed cost for energy, alfalfa and soya.
$4 is seen as a critical crisis level. Farmer pay and administration fee and the sign up period for the 2016 scheme runs from July to September. The scheme is self-financed but backed by Government. Another US initiative is the Dairy Product Donation program that buys consumer ready product when the price drops beneath $4/100lbs for two months and gives the product to food banks.
Euronext Dairy Complex launch
Euronext gave an overview of the Dairy Derivatives proposal which is being billed as an European CME and will trade butter, SMP and whey powder. It has strict rules on specification and quality with the € the nominated currency.
Fixed price contracts
Used by Glanbia and a number of other Irish co-ops. The scheme works as Glanbia has a back to back agreement with a large cream customer. A set milk price band means producer receives half of any price rise or fall but there is a mechanism for the band to move should there be extreme market changes of input cost changes. Difficult for other co-ops to operate but Irish Dairy Board hedging might help.
Market Responsibility Program, EMB
The European Milk Board have developed a proposed measure that is meant to help manage market volatility and has three main parts:
- Market drops 7.5% early warning PSA introduced and producers urged to feed milk to calves etc
- Market drops 15% crisis bonus paid for reduction>5% levy on any farm increasing production
- Market drops 25% mandatory reduction for a set period of time
There was no support at the Copa working group for this measure as it will restrict milk production in the EU whilst we are now part of a global dairy market
French 2 tier payment scheme
Used in France by over 240 co-ops which cover approximately 45% of milk production. The “A price” is the normal price, the “B price” is either based on SMP and butter, AMPE or real price and the “C price” is a deterrent or low price.
Volume is agreed between the co-op and the farmer at the beginning of the year and the system is used to help match processing capacity to production. It is mainly used for domestically consumed milk.
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