Commodity Milk Value

23 October 2017

The Commodity Milk Value (CMV) has fallen in October, as spot prices of all commodities have fallen.

Spot prices for butter have continued to soften in October after peaking at US$6,100/t in late September. Stocks remain tight.

Milk powder prices have also come under increasing pressure, particularly as the EU’s intervention stockpile approached 400,000t. Since the closing of intervention in late September comment’s from the EU Commissioner about tightening policy rules have sent SMP futures  plummeting. Low SMP prices have effectively capped any value increases for WMP, as substitution with fat filled powders remains an option for buyers. The latest GDT event have seen auction prices trending lower, as buyers bet on improved supplies from New Zealand.

Cheddar has been trading in a tight range between US$4,000/t and US$4,100/t since late July. Global trade has been steady, but with more milk likely to be directed into cheese manufacture in the EU and US in coming months, values may come under more pressure

Based on these movements in major commodity prices over October, the commodity milk value has lost around 12c/kgms, ending the month at $5.58/kgms after peaking at $6.17 in June.

Looking ahead, there are the CMV mis likely to trend lower into 2018 as higher milk availability in the EU spring and a moderate recovery in NZ production this season are likely to keep a lid on commodity prices in the coming months. Maintenance of current commodity prices and a slightly lower Australian dollar will be critical to the outlook for improved 2017/18 farmgate milk prices.

About the Commodity Milk Value

The commodity milk value (CMV) measurement and outlook is based on spot prices and Freshagenda’s forecast fundamental value of major commodity products (cheese, butter, whole and skim milk powder), which is in turn based on our rolling analysis of global trade balance.

This is converted into a local value of farmgate milk using the industry’s product mix, deducting conversion costs and converted to Australian dollars per kilogram of milksolids. Our approach recognises there are two components of farmgate 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.

Between 2011/12 and 2015/16 has averaged over 80% of final farmgate returns – ranging between 70% and 95% of the final average price paid by manufacturers in southern Australia.