Commodity Milk Value

2 May 2017

The Commodity Milk Value (CMV) recovered in April, as spot prices of milk powders and cheddar improved and the Australian dollar sank 1½ cents since the end of March.

Spot prices for whole milk powder (WMP) have lifted US$280/t to US$3,200/t in April following a couple of positive GDT results, after huge rainfall from a double cyclone event across NZ. This brought some fears of a rapidly slowing of milk as the 2016/17 finishes and risks for the start of the following season.

This effect also helped Oceania skim milk powder (SMP) sustain a small premium over EU prices which remain subdued due to the large government intervention stockpiles, which have started growing larger again.  Cheddar prices have lifted US$50/t, while butter remains close to March-end prices.

Based on these movements in major commodity prices over April, the commodity milk value has recovered around 26c/kgms, ending the month at $5.42/kgms. But this came after a slide in the first half of the month, which took the CMV back to $5.00/kg prior to the GDT-inspired rally.

Looking ahead, there are some risks that this current flurry in the CMV may be short-lived as higher milk availability in the EU spring and a likely recovery in NZ milk next 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.