Butter boom and European heat wave boost demand.
Record butter prices are continuing to bolster milk returns globally and market analysts predict that demand for dairy fats will remain strong to the end of the year.
Spot prices for butter are now north of €6,300/t, while the current heat wave in Europe is driving icecream sales while also hitting milk output.
The continuing surge in demand for dairy fats is good news for Irish farmers, with processors coming under pressure from the farm organisations to further raise milk prices.
Glanbia and Lakeland Dairies increased their respective milk prices for July by 1c/l to a base of 34c/l including VAT, while Kerry moved from 33c/l to 34.5c/l.
Kevin Bellamy of Rabobank predicted the “elevated butter prices” would underpin dairy returns for the remainder of the year.
Meanwhile, Ornua’s Joe Collins said the milk supply situation and demand for dairy fats had been exacerbated by the recent heat wave in southern and eastern Europe.
However, Mr Collins cautioned that there were “clouds appearing on the horizon” due to the increased butter prices and that “some kickback” on sales had already occurred.
Nielsen buying data up to the end of June shows butter sales in Germany slumped almost 10pc.
“It has been very sluggish from Europe. Traditional importers cannot afford these prices so exports are down about 25pc for that January to May period,” Mr Collins said.
“Typically butter is contracted three months in advance and prices have risen a lot further,” he explained.
However, he said further price increases were possible as demand for the Christmas and New Year markets gather pace over the next two months.
Dairy prices globally have been driven by a shortage of supply rather than increased demand over the last 12 months.
Although milk output has grown this year in both the US and New Zealand, Mr Bellamy claimed that the bulk of these increases were being absorbed into existing markets.
He said additional US production was directed primarily at North America, while increased New Zealand milk output was being bought by the Chinese.
Chinese buyers have been forced back onto global markets because of low stock levels of dairy produce and “challenged home production”, Mr Bellamy explained. In terms of European milk production, Ireland and Poland remain the only countries to have significantly increased output this year.
In contrast, milk supplies in France, Germany, Britain, the Netherlands and Denmark have remained largely unchanged.
“The two big countries – Germany and France – have been disappointing in terms of output. We think it will recover year on year from here as it was so poor in the second half of last year,” Mr Collins said.
Reacting to the latest milk price increases, Gerald Quain of the ICMSA welcomed the moves by Glanbia and Lakeland Dairies. However, he said that Irish milk prices continued to lag behind those of the continental processors.
Sean O’Leary of IFA urged all co-ops to work harder to pass back as much of the dairy upturn as possible to farmers.
He added that milk suppliers had some way to go to rebalance their farm finances after the difficulties of 2015 and 2016.