Limited Dairy Cost Moderation Should be Expected

IRELAND - The Irish dairy sector benefitted from an increase in both milk prices and the volume of milk output.

27 January 2012

2 minute read

Europe

The increase in the value of milk output was accompanied by an increase in the costs of production. Key input prices increased in 2011 but the volume of usage in the case of feed and fertiliser is estimated to have been relatively unchanged.

However, the increase in the value of milk output was sufficient to offset the rise in input prices and therefore dairy margins improved slightly in 2011 relative to the 2010 level.

Nationally, milk production in the 2011 calendar year increased by about 3 per cent on a fat adjusted basis. Due to good early season grass growth some farms have experienced difficulties in matching production to the milk quota, which has led to measures such as the sale of cows, purchase of calves, earlier drying off and once a day milking.

The extent to which individual dairy farmers’ incomes increased in 2011 will largely depend on the change in production year on year. This is likely to vary from region to region and from farm to farm.

For 2012, producers should expect only a limited moderation in costs of production. A decrease in feed prices and an increase in fertiliser prices should largely offset each other and fuel prices in 2012 are likely to be unchanged on the 2011 level.

Global dairy market prospects for the early months of 2012 are less promising that they have been over the last 18 months.

Across the main northern and southern hemisphere dairy exporting regions production has increased in the 2011 (2011/12) season in response to the profitable conditions that prevail.

Greater export capacity, recovering dairy commodity stock levels and a slow down in international import demand are likely to cause dairy commodity prices to decrease in 2012 relative to 2011.

Accordingly, it can be said that there are more negative than positive indicators for the Irish dairy outlook in 2012.

The average Irish manufacturing milk price for 2012 is likely to be lower than the 2011 level of 34 cent per litre.

A decrease in the annual average milk price of 7 per cent is projected for 2012 which would take the Irish milk price back to 31.5 cent per litre.

Costs are unlikely to fall to the same extent in 2012, so the average net margin in the Irish dairy sector in 2012 is likely to decline to a similar level as 2010.