Milk Price III

RightTurnClyde · 20-02-2017 11:37AM

kowtow wrote: »

It doesn't work if everyone fixes.

Hedging is a zero sum gain, you need someone to take a loss so that you can protect yourself from a loss (make a notional gain).
.

But isn't this where the lack of transparency is an issue... who's to say but you could be hedging the fixed 10 or 20% against the unfixed pool, in effect your unfixed 80 or 90%.
With a lack of info from the manufacturers/processors side, the total milk price paid out can always be on the loosing side of the bet, without anyone really knowing.

kowtow · 20-02-2017 01:55PM

RightTurnClyde wrote: »

But isn't this where the lack of transparency is an issue... who's to say but you could be hedging the fixed 10 or 20% against the unfixed pool, in effect your unfixed 80 or 90%.
With a lack of info from the manufacturers/processors side, the total milk price paid out can always be on the loosing side of the bet, without anyone really knowing.

Yup, absolutely.

The whole thing about hedging is the danger of presenting it as some kind of "no lose guarantee" especially in this country and culture where the cry is always for bail out or support. There's no magic wand, and these things should be as plain and transparent as they can be precisely so that those using them understand what they are.

Farmers need to understand the risk of losing out on a fixed price contract, and then take them where appropriate because at that time on their farm the risk of loss on the fixed price worked to reduce a risk which was more of a threat to them.

That is all, that is the whole story of futures markets from the physical side.

The day you lose on a fixed price contract you should still be glad you took it, and the day you lose on an unfixed price you should still be able to look back and say that was a risk worth taking at the time, and hasn't knocked me down.

The suggestion that forward contracts are some kind of clever invention that everyone should use every time, worse still be encouraged to use by fear of losing out in the future, is very dangerous and perverts the whole purpose of hedging.

Farmer Ed · 20-02-2017 02:47PM

kowtow wrote: »

Yup, absolutely.

The whole thing about hedging is the danger of presenting it as some kind of "no lose guarantee" especially in this country and culture where the cry is always for bail out or support. There's no magic wand, and these things should be as plain and transparent as they can be precisely so that those using them understand what they are.

Farmers need to understand the risk of losing out on a fixed price contract, and then take them where appropriate because at that time on their farm the risk of loss on the fixed price worked to reduce a risk which was more of a threat to them.

That is all, that is the whole story of futures markets from the physical side.

The day you lose on a fixed price contract you should still be glad you took it, and the day you lose on an unfixed price you should still be able to look back and say that was a risk worth taking at the time, and hasn't knocked me down.

The suggestion that forward contracts are some kind of clever invention that everyone should use every time, worse still be encouraged to use by fear of losing out in the future, is very dangerous and perverts the whole purpose of hedging.

Actually the more I think about it. It's not just robbing Peter to pay Paul, but it's also robbing Paul to pay back Peter and doing it in such a way that both Peter and Paul both think they are being too clever for each other, but they are both not sure exactly what is going on.

Its a master stroke on the part of the co ops to give the perception that they are doing something to benefit farmers while at the same time making it more difficult for farmers to compare milk prices.

If they wanted to do something to help farmers maybe they should just have given us all a box of biscuits for Christmas with a card instructing us how to use the box for putting money aside for the rainy day once the biscuits had been eaten.

kowtow · 20-02-2017 04:43PM

Farmer Ed wrote: »

Actually the more I think about it. It's not just robbing Peter to pay Paul, but it's also robbing Paul to pay back Peter and doing it in such a way that both Peter and Paul both think they are being too clever for each other, but they are both not sure exactly what is going on.

Its a master stroke on the part of the co ops to give the perception that they are doing something to benefit farmers while at the same time making it more difficult for farmers to compare milk prices.

If they wanted to do something to help farmers maybe they should just have given us all a box of biscuits for Christmas with a card instructing us how to use the box for putting money aside for the rainy day once the biscuits had been eaten.

I get that completely, and I would be against any fixed price scheme which wasn't matched up the line - as I have said many times before.

However - I do have some qualified sympathy for the approach the co-ops have taken. Let's assume for a moment these schemes are matched, the problem the co-op has is to fill the matched scheme fully. To do this, they need to encourage farmers to participate in the (relatively limited) scheme(s) and Irish farmers are a difficult bunch to entice and an even more difficult bunch to please. We are greedy in all the wrong places, and the trap the co-ops have fallen into is to pander to this greed by selling these schemes too hard - particularly on the question of enticements / future scheme allocations.

If enough suppliers can't be found to fill a fixed price scheme at 30c (for example) the correct response is to go back up the chain to the buyer and tell them they'll need to bid up. This exact process happens about 100,000 times a minute in other commodity markets which are fully traded, unlike milk.

In their quest for an easy time, instead of presenting a transparent scheme and allowing informed farmers to take it up, in some cases co-ops appear (from my outsiders perspective) to have fallen for the same easy old route, saying yes to the big client, selling hard to the farmers instead of listening to their reaction, and pretending that this is free money that the "industry" has "innovated" as a benefit to farmers. To the extent that this is happening it is total nonsense. Nobody has invented anything here, it's all been around since God was a boy - everyone knows they can fix mortgage rates as long as a bank will take the other side of the trade and milk is no different.

They need a good solid programme of explanation, total transparency, and to pull their fingers out and get on with it. No more bells and whistles.

Farmers need to understand that when they lose out in a fixed price scheme it does NOT mean they made the wrong decision entering it (assuming they made it for the right reasons)

There are plenty of creative ways they could improve these schemes and take up, but this is not - so far - a very solid foundation to build on.

Farmer Ed · 20-02-2017 05:57PM

kowtow wrote: »

I get that completely, and I would be against any fixed price scheme which wasn't matched up the line - as I have said many times before.

However - I do have some qualified sympathy for the approach the co-ops have taken. Let's assume for a moment these schemes are matched, the problem the co-op has is to fill the matched scheme fully. To do this, they need to encourage farmers to participate in the (relatively limited) scheme(s) and Irish farmers are a difficult bunch to entice and an even more difficult bunch to please. We are greedy in all the wrong places, and the trap the co-ops have fallen into is to pander to this greed by selling these schemes too hard - particularly on the question of enticements / future scheme allocations.

If enough suppliers can't be found to fill a fixed price scheme at 30c (for example) the correct response is to go back up the chain to the buyer and tell them they'll need to bid up. This exact process happens about 100,000 times a minute in other commodity markets which are fully traded, unlike milk.

In their quest for an easy time, instead of presenting a transparent scheme and allowing informed farmers to take it up, in some cases co-ops appear (from my outsiders perspective) to have fallen for the same easy old route, saying yes to the big client, selling hard to the farmers instead of listening to their reaction, and pretending that this is free money that the "industry" has "innovated" as a benefit to farmers. To the extent that this is happening it is total nonsense. Nobody has invented anything here, it's all been around since God was a boy - everyone knows they can fix mortgage rates as long as a bank will take the other side of the trade and milk is no different.

They need a good solid programme of explanation, total transparency, and to pull their fingers out and get on with it. No more bells and whistles.

Farmers need to understand that when they lose out in a fixed price scheme it does NOT mean they made the wrong decision entering it (assuming they made it for the right reasons)

There are plenty of creative ways they could improve these schemes and take up, but this is not - so far - a very solid foundation to build on.

I get what you are saying here about matching the supply with the price that has been fixed by Ornua. But the reality is this has nothing to do with that, as hail rain or snow that contract will be filled without a bother the same as always, fixed price scheme or no fixed price scheme . It's not like Irish co ops are likely to run out of milk as soon as the price falls below 30 c. So in this case it's pretty clear that the Ornua forward selling story is just a red hering designed to impress star struck farmers at area meetings. That's what upsets me. It's just the spin they put out there and expect us to swallow it.

boggerman1 · 20-02-2017 09:23PM

orm0nd wrote: »

Unlike you I don't think it will hold for this year, longer term who knows

I seriously think MJ you need to get the wool outa your eyes with this

lets say milk drops to to 28, you have 10% fixed at 30.5, do you think you will get 28 for your 90% ?

you will in your whole , most likely you'll get 27.85 or there abouts & i bet you will be blowing your trumpet about your 10% fixed

Agree with the above.if milks stays around the 30 cent mark it would be okay.was talking to a friend today who knows a guy on a board of one of the local co-ops.any forward contracts for milk is only for 3 or 6 months compared to a couple of yrs previous where 12/18 mths were the norm for buyers

GrasstoMilk · 20-02-2017 11:29PM

https://www.farminguk.com/News/Cheese-manufacturer-Barber-s-increases-milk-price-by-six-pence-in-February_45626.html

35c base price in our language

Buford T. Justice XIX · 21-02-2017 04:18AM

http://www.irishfarmersmonthly.com/dairy

Not so much milk price but an article by Matt Ryan on cutting costs to help with volatility.

Buford T. Justice XIX · 21-02-2017 08:11AM

Stan McCarthy to retire at the end of this year as CEO of Kerry Group.

http://www.independent.ie/business/farming/agri-business/kerry-group-records-strong-financial-growth-as-ceo-announces-retirement-35468028.html

boggerman1 · 21-02-2017 03:07PM

Gdt down 3.5%.30 cents might be a good price for 2017.not this talk of 33-35 cents.

Buford T. Justice XIX · 21-02-2017 04:26PM

boggerman1 wrote: »

Gdt down 3.5%.30 cents might be a good price for 2017.not this talk of 33-35 cents.

All the major product categories down

https://www.globaldairytrade.info/en/product-results/

Farmer Ed · 21-02-2017 06:29PM

http://www.radionz.co.nz/news/national/316072/silo-collapse-probe-finds-cracks-in-four-others

Could this happen here? From what I am hearing back some well known Co Op managers this side of the planet, could well consider taking up welding classes as a similar situation with cracking tanks is developing here. On a serious note, 500 tons of milk running out the gates of a plant in the the local town is no laughing matter.

Panch18 · 21-02-2017 06:44PM

boggerman1 wrote: »

Gdt down 3.5%.30 cents might be a good price for 2017.not this talk of 33-35 cents.

if lads can get 30 for the big production months i'd say they could be doing about as well as could be expected.

I'm not sure what indicators fellas are seeing to predict continuous increases in milk price

Farmer Ed · 21-02-2017 07:26PM

The last thing we need to be doing now is talking the price down. We have already beaten the 30c. If it only makes 30 for the peak months, that will mean a price drop in the next couple of months. Hard to see that going down well.

alps · 22-02-2017 11:00AM

Glanbia's profits have increased and they are paying out 13.31c/share dividend. For those of us not in the know, how much of a bonus is this to a supplier? I know it's like asking how long is a piece of string, but for an operator with glanbia for say 20 years, would it add 3c/l to his supply, or is this just stupid question..?

rangler1 · 22-02-2017 11:16AM

alps wrote: »

Glanbia's profits have increased and they are paying out 13.31c/share dividend. For those of us not in the know, how much of a bonus is this to a supplier? I know it's like asking how long is a piece of string, but for an operator with glanbia for say 20 years, would it add 3c/l to his supply, or is this just stupid question..?

They pay really good dividends, don't know how they expected us to sell some of our old shares last year

atlantic mist · 22-02-2017 12:32PM

http://www.independent.ie/business/farming/dairy/shopkeepers-in-one-us-state-face-prison-if-they-sell-kerrygold-butter-35472604.html

Farmer Ed · 23-02-2017 05:26PM

Rumours of artificial sweetness company interested in Glanbia? Some might consider that appropriate given their experiences. http://m.independent.ie/business/farming/agri-business/could-glanbia-be-bought-out-by-japanese-food-firm-35475628.html?utm_content=bufferee789&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer The artificial sweetness that is.

boggerman1 · 07-03-2017 06:45PM

Gdt hammered down 6.3%.and most worringly of all wmp is down to 2700$ a ton from a couple of months ago where it was at 3500 approx.is the price recovary of irish prices going to be short lived.i not talking down the price but a large dose of realism is needed.not the deluded ifa/icmsa looking for 33-35 cents now.

Farmer Ed · 07-03-2017 08:31PM

boggerman1 wrote: »

Gdt hammered down 6.3%.and most worringly of all wmp is down to 2700$ a ton from a couple of months ago where it was at 3500 approx.is the price recovary of irish prices going to be short lived.i not talking down the price but a large dose of realism is needed.not the deluded ifa/icmsa looking for 33-35 cents now.

I'm no fan of IFA and ICMSA and I understand you are not trying to talk down the price. But in fairness if they were to do what farmers are paying them to do, then they should be fighting for every last cent. Can't fault them if they are talking up the price a bit. Credit where credit is due.

Don't let the processors use NZ prices to depress us. Things seem to be looking more positive in europe and that is at least in theory is our home market.
http://www.agrimoney.com/news/dairy-giants-hope-volatile-milk-market-has-finally-found-a-balance--10498.html

Fixture · 07-03-2017 09:31PM

I know it's 10 years on the go and I know it brings transparency but I'm still convinced the very existence of the GDT increases dairy market volatility. NZ weather or production lifts and within two weeks there's an online auction to shout "SUPPLY" or "NO SUPPLY" around the dairy trade globally. Would the market jump less frequently without it??

Is it pride prevents the kiwi lads from ending it? They set it up to bring "price discovery" so kiwi farmers could see open market price and end rows about the fonterra price. It has probably succeeded in that aim - most kiwi farmers online seem to blame market rather than fonterra for price drops, which must please the well paid suits in HQ.
But given their strong position on global market, are they doing themselves and everyone else harm? I know market is all about supply and demand, but do other industries run similar online exchanges? Maybe I'm just sick of reading GDT results...

Farmer Ed · 07-03-2017 10:01PM

Fixture wrote: »

I know it's 10 years on the go and I know it brings transparency but I'm still convinced the very existence of the GDT increases dairy market volatility. NZ weather or production lifts and within two weeks there's an online auction to shout "SUPPLY" or "NO SUPPLY" around the dairy trade globally. Would the market jump less frequently without it??

Is it pride prevents the kiwi lads from ending it? They set it up to bring "price discovery" so kiwi farmers could see open market price and end rows about the fonterra price. It has probably succeeded in that aim - most kiwi farmers online seem to blame market rather than fonterra for price drops, which must please the well paid suits in HQ.
But given their strong position on global market, are they doing themselves and everyone else harm? I know market is all about supply and demand, but do other industries run similar online exchanges? Maybe I'm just sick of reading GDT results...

It has certainly been used many a time as a stick to beat us with.

kowtow · 07-03-2017 10:03PM

Fixture wrote: »

I know it's 10 years on the go and I know it brings transparency but I'm still convinced the very existence of the GDT increases dairy market volatility. NZ weather or production lifts and within two weeks there's an online auction to shout "SUPPLY" or "NO SUPPLY" around the dairy trade globally. Would the market jump less frequently without it??

Is it pride prevents the kiwi lads from ending it? They set it up to bring "price discovery" so kiwi farmers could see open market price and end rows about the fonterra price. It has probably succeeded in that aim - most kiwi farmers online seem to blame market rather than fonterra for price drops, which must please the well paid suits in HQ.
But given their strong position on global market, are they doing themselves and everyone else harm? I know market is all about supply and demand, but do other industries run similar online exchanges? Maybe I'm just sick of reading GDT results...

To be honest, if we are all cursing the GDT it is probably doing it's job pretty well.

Most high volume commodities are traded on more or less transparent exchanges - in fact the soft agricultural goods were the genesis of the futures exchanges, long before financial instruments were traded on them. The ability to hedge price on forward contracts saved farmers and probably prevented famine by signalling farmers to stop planting or start planting particular crops a season ahead of the harvest.

Actually milk & dairy products are the one agricultural complex that has really struggled to get any volume and transparency... mainly because milk itself is a short shelf life product and it is still primarily consumed close to the point of production, as liquid milk and local cheese.

There are some futures contracts in Chicago, although they are very illiquid, and there is the NZX and the accompanying GDT. Both of those, as you would expect in NZ, primarily reference the very small amount of milk which is internationally traded but which is the lifeblood for NZ & Ireland. Those are good as far as they go.

The real difficulty is that traded milk is already marginal milk - not wanted locally - and it is therefore an inherently volatile product - it's price will always tend to be close to the variable cost of production of spare litres across all producing countries (note, not the fixed costs, which are set up to produce premium liquid milk).

There are suggestions from time to time of a European exchange, but frankly I think more exchanges are likely to make things worse - you can't run a liquid futures contract without speculators to close the gap between farmers and processors, and there's hardly enough appetite as it is to speculate in milk without splitting the book across continents.

I don't think the price action in the GDT so far this year is particularly indicative of a sustained drop, it could just as easily settle out or climb again, but as long as oil prices stay in check and America keeps producing, and as long as the big overhangs of stock like the EU SMP pile remain uncleared, it's difficult to see a strong run upwards as well.

If we can't make a living with a 30c / litre base price it is our National business plan we need to be looking hard at, not the GDT results.

alps · 08-03-2017 11:24AM

Milk prices

Farmer Ed · 08-03-2017 11:49AM

alps wrote: »

Milk prices

Based on that, our own two representatives still have a bit of catching up to do.

If it was a soccer league table they are very much in the relegation zone.

Siobhan et al, obviously worth every penny, fair achievement to be able to squeeze irish farmers that much.

Waffletraktor · 08-03-2017 11:56AM

Farmer Ed wrote: »

Based on that, our own two representatives still have a bit of catching up to do.

If it was a soccer league table they are very much in the relegation zone.

Siobhan et al, obviously worth every penny, fair achievement to be able to squeeze irish farmers that much.

Ya, but what do you expect when they have to put most of it on a boat vs a truck to the local town :rolleyes:.

Buford T. Justice XIX · 08-03-2017 12:33PM

For what it's worth, I had a text from a lad I know that's fairly well clued in. Apparently, a senior Kerry rep has told our representatives to budget for a milk price of 30c/l on average for the next 10 years!

Farmer Ed · 08-03-2017 01:26PM

Buford T. Justice V wrote: »

For what it's worth, I had a text from a lad I know that's fairly well clued in. Apparently, a senior Kerry rep has told our representatives to budget for a milk price of 30c/l on average for the next 10 years!

That's all very well, but is the senior Kerry rep accepting a pay freeze for the next ten years also?

Farmer Ed · 08-03-2017 01:35PM

Waffletraktor wrote: »

Ya, but what do you expect when they have to put most of it on a boat vs a truck to the local town :rolleyes:.

If you examine Alps link, the rolling average for Fonterra in 2016 is roughly six cent ahead of Glanbia. On a million litre supply that would equate to a NZ farmer being being paid 60k more for his milk in 2016.

Last time I checked New Zealand was still an island and much further away from centers of population than we are.

jaymla627 · 08-03-2017 01:47PM

Farmer Ed wrote: »

If you examine Alps link, the rolling average for Fonterra in 2016 is roughly six cent ahead of Glanbia. On a million litre supply that would equate to a NZ farmer being being paid 60k more for his milk in 2016.

Last time I checked New Zealand was still an island and much further away from centers of population than we are.

But what about all the fixed price schemes/co-op support payments/milk flex/gap scheme loans etc etc, its pretty clear the Plc want our milk for the least possible price and hide behind the above to try and get away with paying the worst milk price in the country when all the above is stripped back, the only bright light about this new spin out is they won't dare cut our lag behind other processors till they get it over the line, then it will be back to corbally/bergin back to conditioning us for price cuts and how the markets are fragile/influx

Milk Price III

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