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Extent of dairy market gloom 'unwarranted', says Kerry Group boss

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The extent of the gloom dairy markets is "unwarranted", said Kerry Group, a large milk buyer, even as United Nations data showed the decline in world values accelerating, taking them to a six-year low.

Stan McCarthy, the Kerry Group chief executive, underlined factors weighing on dairy prices, noting the "relaxation of [production] quotas in Europe with significant increase in production in several countries.

"You have dramatic slowdown in imports into China, as well as the Russian embargo.

"And this like all coming together has had a dramatic impact in prices."

'Almost fear in the market'

However, he highlighted the vulnerability of world prices to values of a relatively small volume of product, estimating that "only 6%, or probably 7%, of the total milk producer is traded globally.

"So a small movement in volume can have a very significant movement in price.

"And quite frankly, right now, it's like there [is] almost fear in the market," he told investors, adding that "I think it's unwarranted, [the tune] of the decline".

Nonetheless, without signs of a pick-up in demand, or output slowdown, it was likely that prices would not start to recover until next year, Mr McCarthy said, a forecast in line with some other observers such as Danone and Rabobank.

Diary prices "are cyclical, and these cycles don't last that long. One would expect them to start picking up in 2016".

'Prices declined across the board'

The comment came even as the United Nations food agency, the Food and Agriculture Organization, estimated world dairy prices falling by 7.2% last month to their lowest since August 2009.

"Prices for dairy commodities declined across the board, with milk powders being most affected, followed by cheese and butter," the agency said.

"Subdued import demand from China, the Middle East and North Africa caused prices to fall.

"Additionally, some manufacturers in New Zealand reduced prices in an attempt to trim inventories prior to the closure of the financial year, at the end of July."

On the output side, "EU milk production is currently running above its level of a year ago, resulting in good availability of products for export", the FAO said, estimating food prices falling 1.0% overall in July to their weakest since September 2009.

Farmer protests

Earlier this week, dairy prices at GlobalDairyTrade, the benchmark auction run by New Zealand giant Fonterra, fell to a 13-year low, prompting questions among from some dairy producers that the events should be suspended, amid ideas of buyers "gaming" the system.

The fall in prices has left New Zealand milk producers, whose costs of output is estimated by DairyNZ at about NZ$5.75 per kilogramme of milk solids, looking at sharp losses, with Fonterra, the country's top processor, expected on Friday to outline a farmgate price for 2015-16 of about NZ$4 per kilogramme of milk solids.

In Europe, the extent of producers' dismay at low prices is prompting protests in countries such as Belgium, France and the UK, where farmers are on Thursday picketing dairy distribution centres, and on Friday are planning a "trolley dash" aimed at clearing supermarket shelves of milk.

Kerry Group on Thursday unveiled a 22% rise to E237.8m in earnings for the first half of 2015, helped by a rise of 4.7% to E3.03bn in revenues, and a boost to margins from a 6% drop in costs of raw materials such as milk.

Kerry Group shares, which closed the last session in Dublin at a record high of E71.71, eased 0.6% to E71.28 in lunchtime deals.

By Agrimoney.com

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