Commodity Milk Value

6 February 2018

The Commodity Milk Value (CMV) has continued to slide over the past few months as concerns about the strengthening EU milk production increase.

After peaking at US$6,200/t back in August butter ended January at US$4,940/t as buyers pushed back on high prices and supply shortages ease. SMP prices continue to suffer under the weight of large EU intervention stocks, with spot prices now at US$1,835/t. The EU Commission has implemented further significant policy changes that affect every dairy farmer with an exposure to the world market, avoiding further additions to their aging powder mountain when their intervention (government buy-back) program opens in March – which has further undermined SMP values.

Importantly for Australia’s export returns, spot prices for cheddar which were resilient for much of last year have also retreated, with the expectation that more EU milk will be directed to cheese rather than SMP/butter production in 2018. Cheddar spot prices out of New Zealand ended January at US$3,550/t. WMP has been relatively steady as the New Zealand availability has been constrained, although value has been capped by low SMP and vegetable oil prices.

The Australian dollar has added around 4 cents against the US currency over the course of the season, which has further undermined the CMV. After opening 2017/18 at $5.05kgMS the CMV stood at $4.42kgMS at the end of January.

Weather concerns in New Zealand and reduced online availability have been behind the positive GDT results that have kicked off the new year. Looking ahead, the size of the EU spring peak will be the critical factor influencing milk value for the remainder of the year and into 2018/19. Our revised outlook for the CMV is published in late March.

About the Commodity Milk Value

Freshagenda’s approach to assessing milk price outlooks recognises there are two components of milk prices paid by manufacturers in southern Australia – a commodity value of milk, which reflects the returns from the global market for dairy products, and an additional value captured on top of base commodity returns.

The commodity milk value (CMV) measurement and outlook is based on spot prices and Freshagenda’s forecasts of fundamental values of major commodity products (cheese, butter, whole and skim milk powder), based on our rolling outlook for the global dairy trade balance.  Projected product values are converted into a value of milk at farmgate using the industry’s product mix, deducting conversion costs, and converting to Australian dollars per kilogram of milksolids.

Between 2011/12 and 2016/17 the CMV has averaged around 80% of final southern farmgate returns – ranging between 70% and 95% of the final average price paid by manufacturers in southern Australia.