Time for a new approach to the world milk price?

In 2016, all eyes in the dairy world have been on the world milk price and they appear to have spotted light at the end of the tunnel. Milk prices finally seem to be increasing sustainably, but only time will tell whether this upswing offers real potential or whether the considerable price fluctuations will remain. Timo Joosten is currently at the World Dairy Summit to gather information. He discusses some of his observations in this blog.

I do wonder if it is realistic to focus solely on the world market price, since only 6% of all milk produced is traded in this way! In the past year we’ve seen some real differences between countries and even within countries, especially those with a high level of differentiation (local brands, specialized products). If we take a look at the world cost prices, as shown in the figure below, there is a huge difference in price according to the geographical area of activity. Most of the time the local climate is an important factor in choices made, and the availability of resources also plays a key role.

global map milk prodution

If we take a look at the figures on the global production map, how realistic is it to talk about one world market price if the cost prices vary from less than USD 20 for 100 kg of ECM up to USD 60 for the same volume of milk? I assume that farmers who can produce at a low cost price would love to obtain the world market price for their products, while others are still making money even based on a cost price of USD 60 per 100 kg of ECM!

A new approach

What if we would challenge farmers around the world about their cost price and, more specifically, their income over feed cost (IOFC)? We could even start with a more fundamental question: what are your actual feed costs? What are the main drivers behind your cost price, and which aspects can you directly influence if you need to respond to fluctuations in the market price?

Insight into costs becomes essential if you are to control them or, preferably, reduce them to improve your efficiency. Providing relevant information to dairy farmers at the right time and in the right format enables them to make the necessary management decisions based on real-time information. You can only steer and adjust when you measure! Turning the data from all available sources into information and providing it to our customers at the right time will be crucial in helping to clarify the discussion about the income over feed cost.

At the World Dairy Summit in Rotterdam these were some of the answers we received after also asking the participants for their views. Visitors from throughout the dairy chain gave us their feedback on the following questions from a dairy farmer: What do you regard as a realistic price I should get for my milk today?
Their answers were:

  • feed price + 5%
  • a fair price
  • a price that enables farmers to make a living

What do you think?


Author

Timo JoostenTimo-Joosten_300hoog
Senior Product Manager for Milking & Cooling and Management Software at Lely.

Timo was a dairy farmer in France for 13 years and has shared his experience all over the world as the global manager of Lely’s Farm Management Support Department.Lely_DICSLAIMER