The mechanism of the market means that national milk prices follow the world market price. According to the IFCN dairy research network, a drop in the local milk market price happens quicker in open markets than in regulated markets.
Torsten Hemme, managing director of IFCN said that the dairy crisis happened over the past 14 months because of a dairy crisis in 2012 and the dairy price boom phase of 2013-2014.
The IFCN says that currently farms are surviving by adjusting the cash flow and hedging with inventories, such as cattle and feed. This means that often maintenance and investments are postponed to buffer the negative income on the farms.
“Farms are small operations. They are starting now to look for risk management tools, to diversify the risks. And we have to follow and support this development,” said Anders Fagerberg, chairman of the IFCN board during a conference workshop.
Demand could soon exceed supply
The question of future milk prices was addressed by about 70 dairy experts from more than 40 countries from the global IFCN Researcher Network.
Analysis of the world milk supply based on IFCN researchers’ estimates shows that supply will grow by 1.5% in 2016. This is substantially lower than 2015 (1.8%) and 2014 (3.2%).
Milk demand growth in 2015 was estimated by IFCN at a level of 1.8% to 2%. This growth was lower than the long-term average of 2.4% per year from 2006 to 2015. For 2016, IFCN estimated milk demand growth at a level of 2%.
In 2014 and 2015 milk supply exceeded demand, and dairy stocks built up. For 2016, IFCN estimates that on an annual basis milk demand will exceed milk supply. This was not the case in the first five months of the year, but this situation could arise later in 2016.
Hemme said milk prices depend heavily on the action of the current dairy stock holders.
“If they keep stocks for a longer time, a substantial recovery before the end of 2016 is possible. Milk price recovery is possible.”