Milk producers who had only hours earlier been optimistic over the predicted long-term high demand for their produce were given a cold shower of reality yesterday, with milk industry analyst Ian Potter predicting they would first have to weather a short-term surplus of milk in the UK.
Speaking at the same conference in Glasgow where UK Environment Secretary Owen Paterson had on Monday for increased output to meet a rising world demand for more milk products, Potter pointed out they could face more immediate problems this coming spring.
He said the Irish, who have long stated their ambition to increase their milk production by 50 per cent by 2020, were not waiting for the removal of quotas in 2015 before they started their expansion. There were already an additional 24,000 dairy cows in Ireland as their milk producers expanded.
“The Irish train is coming and it’s coming towards us,” he warned. “They see the removal of quotas as an opportunity, not a threat.”
He believed there could easily be a return of “black” milk from the Republic of Ireland heading into either Northern Ireland or into Wales and this would upset the home market.
This Irish milk would exacerbate an over-supplied home market where he claimed production was “rocketing”. Arising from this situation, he did not think there was the processing capacity to cope with the volumes of extra milk and this would inevitably result in price volatility.
“All paths lead not only to significant farm gate price volatility but potentially scary volatility,” he said, adding: “Only the weather can prevent a spring correction to the milk price.”
This was despite the major milk powder plan at Westbury “bursting at the seams” coping with the volume of milk being produced. There would be no fortunes made by those supplying this processor, claimed Potter, as the operators would buy as “cheaply as they could and make as big a margin as possible”.
He analysed 2013 as being in a sellers’ market but said 2014 would prove to be the opposite. For producers, the critical point would in the coming months be whether they were supplying a purchaser with processing capacity or just a milk broker. If they were selling to the latter, they would, as he graphically described, “be caught with no trunks on when the tide went out”.
Potter said that Arla, who are one of the big three processors and who recently went on a producer recruitment drive, would play a major role in deciding when prices moved and that other buyers with less processing capacity were caught in a trap. Even if the wanted to, he believed they could not drop their milk price as Arla were still signing up new producers.