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The December milk statement arrived to most dairy farmers 10 days ago and for many it confirmed good news, with December milk prices up 0.14c/kg milk solids or 1c/litre in old money.
There was bad news for more than 3,000 suppliers in Kerry, with the price remaining unchanged from November. This means Kerry drops down to the tail end of the league again and into division three on its own. Drinagh remain on top as it retained a 0.5 c/l unconditional bonus that all suppliers get.
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Dairygold moved to the top of the chasing pack, lifting milk price by 0.19 c/kg MS from November. This sets Dairygold up nicely to have a good cut at 2017 and pay a decent price for the main volume of milk from March to June in 2017. This week details of a second fixed milk scheme were announced and Dairygold suppliers have the option to lock in 10% of a predicted monthly supply for three years at 28.67c/litre excluding VAT.
This is similar to the last Glanbia fixed milk price scheme announced in mid-December.
The players in the lower half of division two effectively held the November price in December and that is why they are in that position. Tipperary (dropped November bonus), Centenary Thurles, Glanbia (dropped Co-op support) and North Cork held price and hence occupy the lower half of the table in division two.
On average, the Irish processors have lifted milk price about 2.5 c/litre for September, 2.5c/l for October, 1.5c/l for November and another 1c/l for December. That’s a 7.5 c/l lift over four months returning some of the global price increase in dairy commodities.
The average price excluding VAT for the December monthly milk league is €4/kg milk solids at national average milk solids. The average price at 3.3% protein and 3.6% fat is 28.7 c/l excluding VAT.
All prices are quoted excluding VAT and excluding SDAS bonuses and conditional bonuses such as cell count bonuses etc.
€159 difference in December milk cheque
As supply is so small, there is a €159/farm difference when we compare the December milk cheque of the west Cork co-ops with Kerry at the bottom at the same milk solids (national average). Figure 1 shows the difference in payout between processors for the standardised litre at 3.49% protein and 4.11% fat supplied during the month of December. It shows the difference in the December milk cheque for a supplier with a normal seasonal spring supply curve (2% in December) for a farm that will produce 300,000 litres (66,000 gallons) in the year.
Actual December price paid out
Figure 2 shows the difference in the actual December milk cheque delivered. When I say “actual”, I mean the money paid out for the different milk solids collected from each of the different processors.
Milk processors collect milk that varies in fat and protein percentage so in effect the quality of milk goes some way to deciding the milk price paid out. The processor can’t pay top price if the quality is poor. The higher the milk solids (fat and protein), the higher the milk cheque.
Farmers should be rewarded for better milk solids so if a processor is getting less milk solids it will pay a lower price and rightly so as it can make less product from that milk. The combination of good milk price and good milk solids puts the small north Cork co-op Boherbue top of this graph for December. There is €387 of a difference between top and bottom.
Tide turns in UK
The tide has turned on UK prices post-Christmas following the heights of £4,000/t for butter and £2/kg for cream. As volumes in the UK and Europe move up, reports suggst buyers are standing away from the market a little. Spot price is in the region 26p/l to 28p/l. Cheese is firmer as whey prices boost the mix. Having said all that, the Arla February price lifted to 27.07p/l and Meadow Foods is up to 27.55p/l.
Carbery and the 5c/l SDAS penalty
The Carbery board decided late last week to introduce a significant penalty on suppliers that are not participating in the Bord Bia SDAS quality assurance scheme.
If milk producers are not participating (not signed up) in the SDAS scheme by 1 April 2017 they will be charged a penalty of 5c/l and if not audited by 1 July 2017, the penalty will continue.
To date, other processors have introduced small but insignificant bonuses that are not included in the milk league opposite (conditional bonus).
Dairygold and Kerry have a 0.1 c/l bonus, LacPatrick a 0.25c/l bonus and Arrabawn a 1 c/l bonus which I understand is up for review from January 2017. The penalty system is probably a cleaner signal than the bonus as it ensures the main signal to the farmer remains on fat and protein as opposed to flat-rate bonuses which lower the significance on the value of fat and protein.
Fat and protein ratios
Dairygold have recently changed the weighting they attribute to fat and protein. As you can see from the values placed on the A and B columns the ratio varies from 2 to 1 as is the case with Dairygold down to 1.2 to 1 for LacPatrick. The weighting for each business will vary according to the product mix of the company. Five years ago many thought the value on fat would be much reduced relative to protein but the upsurge in the value of butter has effectively turned this thinking on it’s head. The relative value of fat and protein should change periodically as processors reflect a changing product mix.
Fixed milk prices
Dairygold, Glanbia and Arrabawn have all announced fixed milk price schemes to run from 2017 to 2019 inclusive. The price varies but is in the region 28.5c/l to 29c/l excluding VAT at 3.3% protein and 3.6% fat.
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