Milk Price- Please read Mod note in post #1

Dawggone

trixi2011 wrote: »

Definitely agree that most higher input farms could graze more grass .

Do you think that the Teagasc line of grazed grass will keep British farmers afloat?

IMHO strong supermarkets coupled with strong sterling is their primary problem.
Why isn't grazed grass propelling the Kiwi's to world domination?

mahoney_j

trixi2011 wrote: »

There seems to be a lot of talk about why a lot of UK farms are farming indoor units and pushing litres the simple answer is that is what the milk companies want in the UK. guys are unable to find a buyer for there milk if they were to go all spring calving or if they do they will be penilised heavily with sesonality penelties . Not all the farmers who are housed and calve all year round have mad high cost of production that you are currently seeing in the media. Definitely agree that most higher input farms could graze more grass .

Finally an on the ground synopsis of UK market and not usual there all mad and wrong for their way of producing milk .there producing what their market wants .its a ruthless market though withbthevway supermarkets operate ..

jaymla627

Dawggone wrote: »

Do you think that the Teagasc line of grazed grass will keep British farmers afloat?

IMHO strong supermarkets coupled with strong sterling is their primary problem.
Why isn't grazed grass propelling the Kiwi's to world domination?

It's a bit blasé lads knocking English guys with indoor systems that maybe in good judgement thought it might be less risky to go indoors and push numbers this way then go and mortgage the farm to the hilt to buy next door to increase their grazing block...
would be good craic trying to pay back a million euro mortgage on recently bought land at 20 cent a litre, we all know cases where dairy lads locally have spent small fortunes on new ground which they bought on the back of thinking they would never see milk below 30c/l, the funny thing is jk could do a article next week on a guy supposedly producing milk for 18 cent a litre but negates to include the 10 cent a litre on top of this the said farmer needs to service a mortgage like above

trixi2011

Dawggone wrote: »

Do you think that the Teagasc line of grazed grass will keep British farmers afloat?

IMHO strong supermarkets coupled with strong sterling is their primary problem.
Why isn't grazed grass propelling the Kiwi's to world domination?

It really does depend on the type of milk contract your farm has . If you have the right milk contract to a line yourself with teagasc guides lines I can't see why it wouldn't stay keep such farms afloat if not profitable in some cases . I really don't know how much of a part the teargac lines of grazing can help the higher input ayr lads but grazing of the low yielder in the summer months maybe a start.

Pacoa

http://www.nzherald.co.nz/national/news/video.cfm?c_id=1503075&gal_cid=1503075&gallery_id=153221

jaymla627

Pacoa wrote: »

http://www.nzherald.co.nz/national/news/video.cfm?c_id=1503075&gal_cid=1503075&gallery_id=153221

He failed to mention the fact that kiwi dairy farmers have a mindset where they simply do everything in their power to avoid paying tax, so his theory that the 8 dollar payout was squirreled away for a rainy day is bs, it went on more land/cows/upgrading facilities, their dairy industry crash is like looking in a mirror to the property crash here back in 2006

keep going

it must bethat time in the month again when this old argument kicks off about yield versus profit,je v hol,ration verus grass or whatever slant .probably not a lot of difference between the good operaters in both systems but that's the trick being good at what you are doing.to be honest im starting to there should be more ration in the low Input system and more grass in the high input.with higher stocking rates in grass herds its nearly most cost effective to feed the ration during grass throughs than baling the surplus when you allow for labour.its when you see fellas making silage and feeding ration the problems are

RightTurnClyde

keep going wrote: »

it must bethat time in the month again when this old argument kicks off about yield versus profit,je v hol,ration verus grass or whatever slant .probably not a lot of difference between the good operaters in both systems but that's the trick being good at what you are doing.to be honest im starting to there should be more ration in the low Input system and more grass in the high input.with higher stocking rates in grass herds its nearly most cost effective to feed the ration during grass throughs than baling the surplus when you allow for labour.its when you see fellas making silage and feeding ration the problems are

Wise words there KG. Some of the best operators I know are taking some of the best practices from both systems, and have set up some very comfortable sustainable systems for themselves.

kowtow

Nobody is more devoted to free markets than me.. but when processors + supermarkets are marking up the milk price by 100% while farmers lose 14p per litre the cause is not oversupply or lack of demand.

Thousands of farmers are competing to sell milk at razor thin margins to a very small number of buyers who are using the global powder price as a reference to underpin their massive markup. Ask yourself would we be in this position if the UK had only 6 dairy farms?

Would be nice to see a months milk turned into powder and sold internationally.. then the supermarket shelves really would be empty.

Dawggone

kowtow wrote: »

Nobody is more devoted to free markets than me.. but when processors + supermarkets are marking up the milk price by 100% while farmers lose 14p per litre the cause is not oversupply or lack of demand.

Thousands of farmers are competing to sell milk at razor thin margins to a very small number of buyers who are using the global powder price as a reference to underpin their massive markup. Ask yourself would we be in this position if the UK had only 6 dairy farms?

Would be nice to see a months milk turned into powder and sold internationally.. then the supermarket shelves really would be empty.

Free markets...
Someone posted that the U.S. have put a system in place where there is a floor/guaranteed price for milk. Free market from the home of capitalism?

To me the world price of food depends on geopolitics and weather.
There will never ever be a "free" market.

Mehaffey1

jaymla627 wrote: »

He failed to mention the fact that kiwi dairy farmers have a mindset where they simply do everything in their power to avoid paying tax, so his theory that the 8 dollar payout was squirreled away for a rainy day is bs, it went on more land/cows/upgrading facilities, their dairy industry crash is like looking in a mirror to the property crash here back in 2006

The boss's accountant near cried when he wouldn't buy a new tractor when he didn't need one at the end of the season of the 8.60 payout.

Sure at the time no one thought about saving when they were investing in time/money saving things such as Auto-Drafting or ACRs, redoing the farm races or regrassing.

frazzledhome

It's when price is low we all embrace austerity on farm. When price is high we spend like sailors, its human nature.

All the talk is of tax and life style. Sheds, tractors, toys and and upfront investment are all the rage. There's nothing wrong with any of the above but they can put enormous pressure on a a business.

The financial planning of those investments need to be rigorous. Some feel that if I have the cash I'll invest forgetting the next bump in the road when he presto we don't have cash to pay the day to day ex's.

Some invest with borrowing trying to max grants and on doing so over spend.

Some borrow too little over too short a period and run out if cash.

I've taken some flac here for out door housing and lagoon. The price of those roofs is what's going to get us through next spring.

At last years IGA one farm was putting a fund aside just for situations like this. This will see them through these tough times.

Talking of guys buying land and repaying at 24c/l is a naive view. These People must take a 5 yr view of milk price and
know full well that there are bumps on the road. A loan for land is over a 20 yr period so unless you've done some thing stupid an 8-12 mth price drop won't stress things too much.

Milk price is only part if a dairy farmers income. Don't forget stock sales and Sfp. Dairy is not unlike any other business in that its all about sales targets.

So what if a few cows need to be sold to add to the bottom line, you still have a full career to rebuild. People need to be prepared to push out expansion deadlines and be patient and flexible.

Finally, don't forget milk price will rise again and we need to be around to take full advantage of it. Lock away the chequebook

kowtow

Dawggone wrote: »

Free markets...
Someone posted that the U.S. have put a system in place where there is a floor/guaranteed price for milk. Free market from the home of capitalism?

The one I saw was, I think, more of an insurance scheme with a levy etc. to opt into a floor price. Basically the farmer is buying a put option over a given quantity of milk, but I might have been mistaken.

Actually one way out of this terror would be to simply have transparent, traded markets and use the futures market for the purposes they were intended. As long as a commodity is freely traded (and CME making a reasonable fist of milk, I think) any number of insurance schemes, hedges and the rest of it can be created easily. Easy and cheap to insure against price drops, and farmers would get early warning of falling prices as the cost of insuring at a certain floor price would begin to rise rapidly.

If we must produce commodity milk, maybe we should trade it like any other commodity. No need for milk futures in Europe either, that's just political nonsense. Let Euro milk add to the liquidity in the Chicago pit as Euro oil does, instead of trying to re-invent the wheel.

Costs me about $0.05 to trade a contract over 90,000 litres of milk futures. I bet that's cheaper than Glanbia pay to administer their "loyalty" payouts etc..

stanflt

frazzledhome wrote: »

It's when price is low we all embrace austerity on farm. When price is high we spend like sailors, its human nature.

All the talk is of tax and life style. Sheds, tractors, toys and and upfront investment are all the rage. There's nothing wrong with any of the above but they can put enormous pressure on a a business.

The financial planning of those investments need to be rigorous. Some feel that if I have the cash I'll invest forgetting the next bump in the road when he presto we don't have cash to pay the day to day ex's.

Some invest with borrowing trying to max grants and on doing so over spend.

Some borrow too little over too short a period and run out if cash.

I've taken some flac here for out door housing and lagoon. The price of those roofs is what's going to get us through next spring.

At last years IGA one farm was putting a fund aside just for situations like this. This will see them through these tough times.

Talking of guys buying land and repaying at 24c/l is a naive view. These People must take a 5 yr view of milk price and
know full well that there are bumps on the road. A loan for land is over a 20 yr period so unless you've done some thing stupid an 8-12 price drop won't stress things too much.

Milk price is only part if a dairy farmers income. Don't forget stock sales and Sfp. Dairy is not unlike any other business in that its all about sales targets.

So what if a few cows need to be sold to add to the bottom line, you still have a full career to rebuild. People need to be prepared to push out expansion deadlines and be patient and flexible.

Finally, don't forget milk price will rise again and we need to be around to take full advantage of it. Lock away the chequebook

Some excellent points there

WheatenBriar

Aye,to the above

Worth noting that 3 of the last six years have been low milk prices
Thats the game you are in

Dawggone

stanflt wrote: »

Some excellent points there

I would like to add to that Stan and say that maybe, just maybe, next year will be a good year to buy stock, lease/buy land etc.

So I would be in for unlocking the cheque book...:)

frazzledhome

Dawggone wrote: »

I would like to add to that Stan and say that maybe, just maybe, next year will be a good year to buy stock, lease/buy land etc.

So I would be in for unlocking the cheque book...:)

A kind of Quantative Easing?

Dawggone

frazzledhome wrote: »

A kind of Quantative Easing?

Lol.
More like a shopping trip at the January sales!

Dawggone

kowtow wrote: »

The one I saw was, I think, more of an insurance scheme with a levy etc. to opt into a floor price. Basically the farmer is buying a put option over a given quantity of milk, but I might have been mistaken.

Actually one way out of this terror would be to simply have transparent, traded markets and use the futures market for the purposes they were intended. As long as a commodity is freely traded (and CME making a reasonable fist of milk, I think) any number of insurance schemes, hedges and the rest of it can be created easily. Easy and cheap to insure against price drops, and farmers would get early warning of falling prices as the cost of insuring at a certain floor price would begin to rise rapidly.

If we must produce commodity milk, maybe we should trade it like any other commodity. No need for milk futures in Europe either, that's just political nonsense. Let Euro milk add to the liquidity in the Chicago pit as Euro oil does, instead of trying to re-invent the wheel.

Costs me about $0.05 to trade a contract over 90,000 litres of milk futures. I bet that's cheaper than Glanbia pay to administer their "loyalty" payouts etc..

The time is now...
Some mechanism should be put in place, whether it be an insurance scheme that requires a levy be put in place or some kind of futures market.

Having said that a levy would probably go down like a lead balloon.

In fairness every morning without fail I have a look at what way the grains market are moving. I don't have any option with milk other than fill a muck spreader and join the rest of the madness...

Pacoa

If a farmer was paid a few extra cent a lt for producing say 5% less this month than the same month last year, that would have the effect of reducing production. In otherwards it would be more profitable to reduce production which is what we need in order to get the milk price moving upwards. Any mechanism that is put in place must reduce production, I can't see anything else working in the long run.

mf240

Pacoa wrote: »

If a farmer was paid a few extra cent a lt for producing say 5% less this month than the same month last year, that would have the effect of reducing production. In otherwards it would be more profitable to reduce production which is what we need in order to get the milk price moving upwards. Any mechanism that is put in place must reduce production, I can't see anything else working in the long run.

Low prices cut production. Then prices rises and production rises. Then price falls and production falls. Thats how markets work.

kowtow

Pacoa wrote: »

If a farmer was paid a few extra cent a lt for producing say 5% less this month than the same month last year, that would have the effect of reducing production. In otherwards it would be more profitable to reduce production which is what we need in order to get the milk price moving upwards. Any mechanism that is put in place must reduce production, I can't see anything else working in the long run.

It depends who pays it and who funds it.

What you are describing is a reverse quota, can have interesting and unpredictable effects. I suspect that the particular system above would lead to chronic overproduction, as farmers profit when price is high and then profit even more when the price drops, but it can end up a lot more complicated than that.

It also assumes the presence of a reference year - what happens when new entrants steam in, maintaining the supply while others are being subsidised to get out? In any event it would be unlikely, IMO, to improve things.

The futures markets were invented by farmers to solve the very problem we are discussing - volatility - and to provide advance price signalling to help with the production cycle, both for processor and producer. They actually work really well at that and they are very cheap to run in terms of transaction costs.

While liquid milk is a problem contract, because it is a fresh product, milk powder is not and from all I can see it is actually powder (i.e. GDT prices) which is taking the floor out of the price at the moment, both in the UK and here.

But powder absolutely is a graded commodity whatever anyone likes to think, so I'm not really sure why we don't deal with it that way. We could all be sitting here now looking at the Spring 2017 futures price and deciding whether to sell into it to fund expansion, or hold off and see what happens. Those of us who had chosen to lock in prices by selling ahead during the exuberance of last year would now be delivering milk and spending the profits.

And the current spot price would likely be a bit higher anyway because the price would have fallen more gently, and earlier, as people sold ahead last year and found no committed buyers. Fewer people would have turned up the volume to produce the unwanted milk.

No real mystery in that approach.

yosemitesam1

kowtow wrote: »

It depends who pays it and who funds it.

What you are describing is a reverse quota, can have interesting and unpredictable effects. I suspect that the particular system above would lead to chronic overproduction, as farmers profit when price is high and then profit even more when the price drops, but it can end up a lot more complicated than that.

It also assumes the presence of a reference year - what happens when new entrants steam in, maintaining the supply while others are being subsidised to get out? In any event it would be unlikely, IMO, to improve things.

The futures markets were invented by farmers to solve the very problem we are discussing - volatility - and to provide advance price signalling to help with the production cycle, both for processor and producer. They actually work really well at that and they are very cheap to run in terms of transaction costs.

While liquid milk is a problem contract, because it is a fresh product, milk powder is not and from all I can see it is actually powder (i.e. GDT prices) which is taking the floor out of the price at the moment, both in the UK and here.

But powder absolutely is a graded commodity whatever anyone likes to think, so I'm not really sure why we don't deal with it that way. We could all be sitting here now looking at the Spring 2017 futures price and deciding whether to sell into it to fund expansion, or hold off and see what happens. Those of us who had chosen to lock in prices by selling ahead during the exuberance of last year would now be delivering milk and spending the profits.

And the current spot price would likely be a bit higher anyway because the price would have fallen more gently, and earlier, as people sold ahead last year and found no committed buyers. Fewer people would have turned up the volume to produce the unwanted milk.

No real mystery in that approach.

Would it be possible to buy/sell a mix of products to make the US futures more representative of the Irish price?

Pacoa

Those of us who had chosen to lock in prices by selling ahead during the exuberance of last year would now be delivering milk and spending the profits.

Yes and you'd have no incentive to reduce your current production level.

frazzledhome

Here we go another 6 mths to turn around

http://m.jsonline.com/business/farmers-fret-as-milk-prices-plummet-profits-dwindle-b99552416z1-321194811.html

kowtow

Pacoa wrote:

Yes and you'd have no incentive to reduce your current production level.

We wouldn't have increased it.

And nor would others because it would have been clear there were limited buyers as soon as we tried to sell forward .. in other words a year or more ago.

I'm simplifying things of course.. but a liquid futures market is by far the best way to moderate volatility. It's worked for well over a century.

kowtow

yosemitesam1 wrote:

Would it be possible to buy/sell a mix of products to make the US futures more representative of the Irish price?

Difficult I think because the most liquid us contract is liquid milk and even that is still a quiet one. It's usually possible to extract some kind of proxy basket but v. Dangerous if you are trying to hedge out risk rather than multiplying it!

A powder contract of some sort would be the answer although if the article frazz linked above is right the US liquid price might be becoming a proxy of its own accord.

The ethanol crack keeps the various components and processes, products of crude oil in good supply without too many issues so no real reason why milk couldn't be the same.

yosemitesam1

So would you need maybe five or six different powder contracts (whey,smp etc) and the co-op to guarantee some sort of a formula based minimum price? What sort of volumes would a contract need to be liquid enough?

frazzledhome

Weather threat in Oz

http://www.dairynewsaustralia.com.au/trending/el-nino-threat-hampers-hay-planning

Blackgrass

frazzledhome wrote: »

Weather threat in Oz

http://www.dairynewsaustralia.com.au/trending/el-nino-threat-hampers-hay-planning

El Niño was highlighted 2+ months ago and they reckon this could be extremely severe and usually coincides with strengthening grain price