Volatility within the dairy sector has acted to generally strengthen milk prices in the USA.
President and chief executive of the of the National Milk Producers’ Federation of America Jim Mulhern told the Managing Dairy Volatility conference spikes in dairy markets had ‘more than made up for the downturns’ over the past decade.
Mr Mulhern, who was speaking at the event hosted by the Ulster Farmers Union and Dairy UK, said: “These trends have been linked to movements in feed markets and international oil prices. But it was the downturn in milk returns, experienced in 2009, that forced the US dairy farming sector to face up to the challenge of establishing effective tools to deal with volatility.”
Mr Mulhern went on to point out it took almost six years for milk producers to get US Government support for a form of insurance scheme, named the Dairy Margin Protection Programme.
“It was launched in 2015 and constitutes a partnership arrangements involving farmers and the government,” he added.
“In essence, producers can buy insurance cover, up to a maximum level of $8 per hundredweight of milk. The scheme triggers in once milk prices fall below an agreed level.
“It is then up to the US government to pay out, once the scheme goes live. Up to 80 per cent of US dairy farmers signed up for the measure last year. But, as it turned out, price levels were sufficiently high so as not to trigger the support mechanism during that full 12-month period.”
As a consequence, sign-up levels for the measure had fallen back to some degree in 2016.
However, Mr Mulhern added: “There remains general agreement that the principled enshrined in the Margin Protection Programme will work over the long term.
“There is also recognition that the measure cannot be used to promote milk output.”
Continuing over production is at the heart of the price slump which continues to impact on international dairy markets, the conference heard.
United Dairy Farmers’ chief executive David Dobbin predicted carnage on a ‘Biblical scale’ within the dairy sector, if the current downturn in milk returns continued into the medium and long term.
“Casualties are already inevitable,” said Mr Dobbin.
“Continuing over production of milk in the EU is the reason why the downturn in dairy has continued for so long. We need to see a production response, in order to reverse these trends.”
Mr Dobbin characterised the growth in milk production recorded in the Netherlands and the Republic of Ireland since the ending of quotas as ‘mindless’.
“All of this extra milk is simply going into intervention or private storage. And the future off-loading of this product will simply delay the day when international milk markets can deliver a sustainable price at farm level,” he said.
Mr Dobbin pointed out volatility was a double edged sword.
“No one complained when record milk prices were being delivered back in 2013,” he told the conference.
“The EU started to withdraw its support for the dairy sector back into 2006. And this heralded an intensification of the volatility which now characterises world markets.
“The Global Dairy Trade auction is also accentuating volatility trends. All auctions will act to deliver this effect.”
Looking to the future, he said production levels must be driven by market requirements.
“The EU is now the largest producer of milk in the world. So over supply issues will, inevitably, have an impact on world prices, said Mr Dobbin.
“There is also an onus on dairy farmers to become more efficient in the way they go about their business.”
Many milk producers have got the scope to improve margins by as much as 6p/l, according to United Dairy Farmers’ chief executive David Dobbin.
This could be achieved by driving up general efficiency levels and improving milk quality.
“In many ways the milk price is pretty irrelevant when it comes to determining farmer sustainability. Margin is everything,” he said.
“Contracts may have a role to play as the dairy industry responds to the challenge of volatility. But these must tie-in farm gate milk prices with all relevant input costs, including feed and fertiliser.
“In the short term, the milk industry can do nothing but ride out the current storm and then put coping mechanisms in place, once markets start to improve.
“At that stage, the priority will be to develop support systems that will allow dairy farmers deal more efficiently with the next market slump which will, inevitably, follow.”
Turning to the future role of the European Union Mr Dobbin said the recently established Agri Markets Task Force was looking at ways of strengthening farmers’ position in the food chain.
He added: “Some general principles have been agreed. One of these is to find ways of transmitting dairy market trends more efficiently back down the line to producers. This, in turn, would allow farmers make more timely decisions with regard to their future production levels.”
But Dobbin made it clear that decisions to cut back on milk output must involve all EU member states.
“Everyone must buy into the principle,” he said.