Pressure to change fat prices

Irish processors are coming under increasing pressure from dairy farmers to change the price they are paid for protein relative to fat given the butter price rises.

Every month, milk processors set a protein price per kg (A) and a fat price per kg (B) and, combined, they form a price per kg milk solids with a discount on volume (water). Some farmers are angry that the fat price (the B value) has not changed despite the significant price rise for butter.

Looking at the relative values of protein to fat in this month’s June milk league (see page 16), Kerry, Lakeland, Glanbia and Tipperary Co-op have a relative protein to fat ratio of over 2:1.

Farmers believe this is way off the mark in terms of what prices these commodities are now making on international markets. The prices farmers receive for fat and protein should in some way reflect the value of these products on commodity markets. In recent months, Dairygold and Arrabawn have made significant changes.

Dairygold reduced the relative value of protein to fat from over 2.4:1 down to 1.6:1 while Arrabawn has recently dropped to 1.85:1. Both have decided to put a higher value on the fat they take in to reflect the changing value of butter in the market.

Last few years

If we look back at the values from the GDT auction in 2014 and 2015, butter was trading at between $2,500/t and $4,000/t and now it is touching off $6,000/t. Whole milk powder for 2014 and 2015 was making between $2,000/t and $3,000/t but for two years prior to that it was over $5,000/t.

LacPatrick is almost valuing fat and protein at 1:1 while processors such as Kerry and Glanbia are still valuing protein twice as high as fat, which is not reflective of current market signals.

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