The Business of Dairy

Understanding My Milk Price

June 01, 2022 NSW DPI Season 2 Episode 1
The Business of Dairy
Understanding My Milk Price
Show Notes Transcript

It’s the 1st June - an important date in the Australian dairy calendar. Most listeners will know that under the dairy Mandatory Code of Conduct, processors are now required to announce their minimum farm gate milk price today in their milk supply agreements.

My guest this episode is Janine Waller, Executive Director of Australian Dairy Products Federation or ADPF - the nations peak body for dairy processors, marketers and traders. Janine has a history spanning more than 20 yrs working in the food industry, consulting to market leading clients such as Dons Smallgoods and also working with Lion Dairy and Drinks for 13 yrs. We discuss some of the domestic and international drivers behind the milk prices being announced and the current challenges being experienced across the nation by farmers with inflationary impacts on input costs. We also highlight the Milk Value Portal that aims to provide transparency behind milk pricing in Australia. The MVP is a web-based portal that houses some excellent resources and tools to help understand the complexity of milk pricing in Australia. It provides links to processor milk supply agreements with minimum pricing and enables farmers and others to understand pricing in their own region.

 

Useful resources related to this podcast:

Milk Value Portal

Farmgate Milk Value Tool

Processor Milk Supply Agreements (MVP)

Processor Milk Supply Agreements (NSW specific)

The ‘What-if’ impact on value

 

This podcast is an initiative of the NSW DPI Dairy Business Advisory Unit 

It is brought to you in partnership the Hunter Local Land Services

Please share this podcast with your fellow farmers and colleagues and feel free to contact us with suggestions or comments via this email address thebusinessofdairy@gmail.com

Further NSW DPI Dairy channels to follow and subscribe to include;

NSW DPI Dairy Facebook page

DPI Intensive Livestock Twitter feed

NSW DPI Dairy Newsletter

Transcript 

Produced by Video Lift

The information discussed in this podcast are for informative and educational purposes only and do not constitute advice. 

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The Business of Dairy 

 

Season 2; Episode #1 Transcript – “Understanding My Milk Price”

 

Sheena Carter: Welcome to the Business of Dairy Podcast. I'm Sheena Carter, Development Officer with the New South Wales Department of Primary Industries Dairy Team. It's the 1st of June, an important date in the Australian dairy calendar. Most listeners will know that under the dairy mandatory code of conduct, processors are now required to announce their minimum farmgate milk price today in their milk supply agreements. My guest this episode is Janine Waller, executive director of Australian Dairy Products Federation, or ADPF, the nation's peak body for dairy processors, marketers and traders. Janine has a history spanning more than 20 years working in the food industry, consulting to market leading clients such as Don Smallgoods, and also working with Lion Dairy and Drinks for 13 years. We discuss some of the domestic and international drivers behind the milk prices being announced and the current challenges being experienced across the nation by farmers with inflationary impacts on input costs. We also highlight the Milk Value Portal that aims to provide transparency behind milk pricing in Australia. The Milk Value Portal is a web based portal that houses some excellent resources and tools to help understand the complexity of milk pricing in Australia. It provides links to process and milk supply agreements with minimum pricing and enables farmers and others to understand pricing in their own region. 

 

So welcome to the Business of Dairy Podcast, Janine, it is great to have you on our show today. Before we get into talking about the Milk Value Portal, can we just have a quick chat about some of the drivers behind the current milk pricing? It's a challenging time for milk supply globally and it's resulted… in Australia, we're seeing some processors come out quite early and with quite strong milk prices. So what are some of the drivers behind all this? 

 

Janine Waller: Yeah, thanks Sheena. I mean the key global and domestic drivers that are really influencing milk prices are probably threefold. So as you said, globally, milk supply is really tight and that's driven by a combination of weather and obviously the Ukraine war, which is driving really high input costs. Then we've got really strong demand and off the back of that, obviously high export values and then we're seeing a very limited domestic supply. So basically it means that milk is more valuable around the world if we compare to where we are versus 12 months ago. It's more valuable… you know, milk production is down, if I look at the EU, the US, New Zealand, and in Australia we're seeing similar volumes are down 3.5%, so expecting to close out the season at about 8.6 billion litres. So you know, whilst as you said, milk prices are positive, margins are being squeezed along the supply chain, the milk pool is contracting, input costs are high, labour shortages, weather conditions. So, you know, we're weathering this perfect storm, but on the positive milk is obviously very valuable. 

 

Sheena Carter: Yes. And it is quite extraordinary to see such high milk prices and that constrained supply. Normally, you know, historically, I guess we've probably seen, it'd be a lag effect, but you will see milk prices increase and consequently milk supply increase. But as you've said, there's lots of major forces that are bucking the trend this time around. Are there any specific industry announcements that you're happy to talk about? This podcast is being recorded a couple of days before the 1st of June, and we have seen some processors come out early. What are you seeing? 

 

Janine Waller: Yeah, absolutely. As you said, pricing activity started early and they're absolutely strong. And obviously, if we just take one step back, as per the ACCC's Dairy Code of Conduct, milk processors have to announce their price by 2pm on 1 June each year. But as you said, we've seen those early announcements and that's really giving farmers an indicative of what's ahead, you know, certainty around that season. The other point that is also important to distinguish is obviously the regions, you know, the southern regions versus the northern regions, and just sort of taking that quick step back as to why we're starting to see that difference. Southern regions obviously highly influenced by global markets; northern regions, more of those milk drinking states, so where we sort of generally tend to see differences in prices. But New South Wales is an example. We've seen some early indicative prices sitting around about that 74.5 cents per litre mark, which means that they are opening about 9 to 10 cents higher than what they were this time last year. You know, it's looking at about a 14% higher northern region. You know, we've seen prices up to 84.5 cents so you know, $0.12 higher than last season, and then southern region again high, sitting around about that $8.40 to $8.60 kilo per milk solids at this point in time, also averaging about 9 to 10 cents higher or $1.20 to $1.30 per kilo milk solids higher than this time last year. So, you know, considering that we're four weeks away from the start of 1 July, it's incredible to see these prices, you know, and hopefully that will encourage confidence in the market, farmers to ideally produce more milk and stem that tide of people leaving the industry. 

 

Sheena Carter: Yeah, and I guess, you know, that's the positive side, is the potential income that farmers will see. But on the flip side, at a farm level, obviously, there's a lot of concern around potential margins that people will see with higher input costs. You know, I think certainly in the grain space, we're seeing prices increase to quite high levels, you know, barley and wheat are well and truly looking at, you know, over $400 a tonne, some of the protein meals as well, your canola and soybean meals, are not only quite expensive, but getting difficult to get hold of, so there's challenges there. Still we've got these high fertiliser prices with urea and then just general inflationary impact on other input costs, which, you know are, a lot of all this high input cost is driven by the similar factors that you spoke about earlier with the war in Ukraine, COVID, supply chain issues – all these things are impacting that. So that that will be something that people will be faced with in managing them as well as the climatic conditions depending on where you are. Obviously the coastal regions of New South Wales are really, really struggling and they've got the recovery process after floods and not just the floods but the prolonged wet weather to deal with. Hopefully many of them are able to get some autumn sowing happening before it gets too late. But, you know, that's certainly the farmer's side of the equation. How is this, you know, all these high input costs and inflationary pressures, supply chain issues, how are they playing out with the processors? Obviously, they're being impacted as businesses as well. 

 

Janine Waller: And as you said, Sheena, very similar from a post-farmgate or processing perspective as well, you know, enormous pressures to obviously get their product mix right. And one of the important factors is obviously they're having to announce price 13 months out from the end of season, or the end of year, and so it's really challenging from that perspective. We’re also coming out of COVID, as you said, and sort of trying to manage that new norm. But on the flip, you know, milk is obviously valuable, but again, we've got that pressure of really, really tight supply versus high demand. And as you alluded to already, you've got these really high material costs, of which obviously milk is one of those costs, but costs being affected by increases in crude oil, you've got global logistics, all of that then feeding into higher packaging costs, higher logistic freight costs, labour challenges, energy, other utilities… as you said the list goes on and on. And if we sort of try to bring that in locally, as you said, processors are facing that competition for milk, as obviously southern milk producers are, or the production is falling away, and we're seeing some of that southern production obviously go up to northern regions to obviously accommodate for some of the losses that have happened as a result of the floods. You know, you've got these higher prices, but this reluctance from the retailer to obviously push those price increases through to the grocery shopper. So, it's a very, very challenging time, and as you said, appreciate that it's happening, you know, across the supply chain. But, you know, there's a wealth, as you said, of insights that are driving the price at the moment and I know we're going to get to the Milk Value Portal, but hopefully all of those are available on the portal to really help farmers and other listeners understand, you know, these challenging times that we're in. 

 

Sheena Carter: Well, I mean, it's tough across all industries, and yeah, it just highlights that no one is immune to what's going on in the world – farmers, processors, anyone, so it's really tough. You know, hopefully we see this settle down in the shorter term. It's probably more likely to be the medium term but we've got to ride through this before things start to change. Milk pricing has always been something that has been very complex and sometimes quite difficult for people to understand, but fortunately we now have through you, through the ADPF, an online tool called the Milk Value Portal. Can you tell me a bit about the Milk Value Portal? What is it, why was it developed, and how can we use it? 

 

Janine Waller: Yeah, absolutely. If I take a couple of steps back, so one of the biggest challenges was the issue around trust, transparency, milk pricing, as you said, is very complex. So the whole premise behind the Milk Value Portal was to try to demystify milk price. Help answer those questions around what is the milk price, what influences the milk price? And that's all about helping farmers make better on-farm business decisions. More information, as you said, the easier or the more tools that we have at hand. This was part of the ADPF’s strategic plan but it also aligns with the Australian Dairy Plan and the Commitment Five in there around addressing trust and transparency. So the Milk Value Portal was born late in 2020 to obviously address that. And if I sort of summarise it in a nutshell, it's really a one stop shop about milk pricing and the value of milk across the regions in Australia and all the factors that obviously shape the value of milk for that season. Probably one of the most important things is that the data, or the milk pricing data that is on the portal, is sourced directly from the buyers of raw milk, so that's your processors. And then we have it aggregated by an independent third party. So all of the data that's on the site represents about 90% of the milk pool across Australia. It's eight of the nine milk production regions to make sure again that it's representative, and the pricing in there is updated as any prices, or price announcements, are made, obviously with 1 June really being that main, sort of, announcement where we would update the data. 

 

Sheena Carter: So can I just ask on that, Janine, 1 June, 2pm, how quickly do you get the data into the portal? 

 

Janine Waller: So, we endeavour to do it as quickly as we can, but as you said, there's a lot of work that goes on in terms of interpreting contracts, understanding, as you said, the minimum prices that are being offered. So this year, we're anticipating to get it up within the first ten days, but that is also dependent on how fluctuant the prices are and the announcements are because we're hesitant to launch and then obviously the information change and, you know, what we've got up there is wrong. 

 

So we're hoping, obviously, that we've got a little bit of an indication of where we are. We are going to endeavour, as I’ve said, to get the information up at the start of June and then assuming that things settle, we’ll then, obviously, probably do two major updates during June and then, sort of, prior to the end of the month so that the data is accurate, ready to go, obviously, for 1 July. But the key thing, as you said, is that the data is hopefully up as soon as we can and it's accurate and then obviously farmers can use that. And it's not just the pricing data that we put up. We also publish the contracts, or links to the contracts, I should say, so that again, farmers can go on and they can have a look at all of the different terms and conditions that are in the contracts and obviously see where various incentives are being paid within those contracts as an example. 

 

Sheena Carter: Yeah, and that takes a bit of digging sometimes, doesn't it? The way different processors pay based on different things, different incentives, different deductions, so the devil is certainly in the detail. Yep. 

 

Janine Waller: Now I have lots that I could tell you about the site, so I don't know how much time you want to spend on it. So there are a couple of sort of key tools in there if we've got the time, but probably guided by us to how much depth you want to go into. 

 

Sheena Carter: Well, I guess, look, there is a lot on there, and I think it's all really valuable information. I guess perhaps if we start at just touch on some of the high level things in terms of insights and reports that are available to industry and farmers. 

 

Janine Waller: Absolutely, yep. So let's go through the key ones. At the core of the Milk Value Portal is the Farmgate Milk Value Tool. So basically that tool allows a user or a farmer to go on and get a regional comparison of average farmgate milk prices. And obviously that's then influenced by a raft of farm characteristics such as farm size, seasonality of supply, milk components, etc.. So as an example, if I was a farmer in Griffith, New South Wales, I could log on to the Milk Value Portal and then I would choose those farm parameters that are as close to me. So I would choose my location, I choose my farm size – that's in litres – I look at my seasonality of supply, so am I flat, am I average, am I seasonal, am I split? I look at my butterfat and my protein content. I pick whether I want it in cents per litre or am I a kilo milk solids person and obviously I pick the year. So we've got data going in obviously for the current year, but there's also historical data. And then what it will do is it will generate your weighted average milk price and a range of prices and all of those have been taken from the minimum prices that are available in the milk supply agreements. So basically what it's trying to do is help a farmer see, by changing different parameters on their farms, so if I do change how I do, you know, if I'm flat versus seasonal, if I'm looking at my difference in my fat or my protein content, how that may influence the price that I may end up with obviously being paid. 

 

Sheena Carter: You're looking at an average and you’re also sort of seeing the range within a region that you would expect to see. 

 

Janine Waller: Absolutely. But again, that's an average range. So we don't feature any individual prices. For us, everything is all obviously weighted. The tool is obviously supported by a range of market insights, so similar to obviously what we have spoken about and, you know, you use those to obviously complement the information that you're receiving in terms of your weighted average price. And there's also a range of other tools, I mentioned to you that we've got the contracts, so all of the processor’s milk supply agreements are up on the site, so obviously they can say then what are the terms and conditions and how they're obviously incentivised. You know, as I said, the ideal is it's a bit of a one stop shop that is available to the farmer, and as you said, hopefully more important in June, particularly all of the activity and the pricing and contract features that are going to come out for the new season. 

 

Sheena Carter: Great. I've certainly had a play around in it and it is quite useful in, sort of, giving that indicative look in a region around milk pricing. The other thing that is sitting in there is your ‘What If’ milk value tool to help understand some of the drivers behind setting prices. Can we have a quick chat about that? And I do realise it's very difficult for the listeners who don't actually have this in front of them but if we can try and describe what it does and what you're seeing. 

 

Janine Waller: Yeah, absolutely. So the What If tool is there to allow users to understand the impact of the change in commodity markets and also what's happening in terms of exchange rates. So commodities, things like your butter, your cheese, your milk powders, exchange rates and it brings it all down to Australian dollars and it really helps you to then understand, what does that then mean in terms of a commodity milk value? So your commodity milk value is a good indicator around your milk price. So it enables you, particularly if you sort of in the southern region and obviously exposed to those global markets, it helps you to understand, what does it mean if there are a change in my commodities? What happens if the Australian dollar goes up or goes down? 

 

Sheena Carter: Great, excellent. And I guess a bit of an example to try and explain that the dollar fluctuation – which I just had a look at the Brent Crude Index today just to try and explain that, because I think everyone, you know, certainly fuel prices are something that people are all exposed to and understand – but if we look at Brent Crude, it's about $115 a barrel today, so if we were, and that's purchased in US dollars, so if an Australian is buying a barrel of oil and the dollar is $0.70 for the US dollar, then effectively that barrel is going to cost $164. Whereas if the dollar goes up to around $0.75, the cost of the barrel in US dollars, sorry in Australian dollars, comes back down to about $153. So, by hopping into your tool people are able to adjust things like that and see that impact. Because it is significant isn't it, depending on the size of the change? 

 

Janine Waller: Absolutely. And as you said, you know, it's particularly important for those southern region manufacturers that are really exposed to the commodity market, to have those tools that are available so that they can, as you said, play and see which will obviously impact potentially the milk price. 

 

Sheena Carter: Yes. Now, I guess some of the other resources there aren't as dynamic and as interactive as the Farmgate Milk Value tool and the What If scenario tool, but there's some really useful reports in there. There's the Quarterly Insights Report. I think that's a great report, do you want to have just a bit of a chat about that one?

 

Janine Waller: Yeah, absolutely. So, as you said, every quarter we put out an insights report that's almost a reflection of the quarter that was and then there there's some insights around forecasting what we predict. But it's great in terms of giving you that global, but obviously domestic, lens as to all of the drivers and influences that are impacting, obviously the milk prices and the value of milk that we're seeing, so a lot of those insights, or drivers, that we touched on at the start of this around, you know, demand, supply, you know, the input costs, it all gets captured. But what's nice obviously, is the Milk Value Portal features a whole raft of information, and what we have heard is it's more about the insights, or how do I distill the key take out messages from that? And that was really where the quarterly report came from, was to try to take all of that information and make it more meaningful. And so it does come out quarterly and we have, sort of, had feedback to say, oh, you know, could you make some of those insights available more regularly? Which absolutely, you know, we're looking at now because, as you said, I think it's more the mining or the interpretation of that information, to then help, well how does that impact the way that I operate or how do I best plan for what's coming forward? 

 

Sheena Carter: Excellent, I look forward to seeing some more regular updates. 

 

Janine Waller: Yeah, absolutely. And I think, the other tools that we've got on the site, there’s a fact sheet, sort of a bit of a 101 around what is the Milk Value Portal? There's some videos up there, again to obviously help users or listeners understand what is the Milk Value Portal and what's on the site, but that's ever evolving. So if listeners today go on to the portal and there's areas that they think, you know, this can be improved or you’re missing this resource – we have links, obviously, to the Dairy Australia resources – all of that would really be welcome feedback because, as you said, we're always looking for how we may be able to improve the portal. 

 

Sheena Carter: Excellent. Look, I guess one thing that we haven't mentioned, which is really important to mention, you said you've got on the portal, there's the processor milk supply agreements – New South Wales DPI, we have a link on our website as well to some similar processors, but we do have a couple of New South Wales ones that you haven't captured on your one. Obviously there's many processors throughout Australia, so it's quite a list. But the importance of, you know, obviously farmers need to understand prices that are being announced and to work their way through the milk supply agreement to see that it's going to suit them. I think it's really important that we highlight for a farmer to find out what is my price going to be? Income estimates from a processor are the gold standard. That's where they need to get their final answer and income estimates from multiple processors if they're looking at changing supplier, to understand their milk price properly. 

 

Janine Waller: Yeah, I couldn't agree with you more, Sheena. As you said, the Milk Value Portal, and in particular the Farmgate Milk Value Tool, provides data in weighted averages, as you said, or ranges, based on, you know, the minimum prices that are in the milk supply agreement for that year and obviously for each quarter. So it wasn't designed to be a click-and-compare, it doesn't show you individual prices that are available for each processor, so it's really an indicative of obviously historical data and current data. So most importantly, as you said, if you want that specific pricing information about what will I, and what am I expecting to get paid, then as you said, you're best to talk to your processor and get the income estimate to give you that detailed information that you need. 

 

Sheena Carter: Yep, fantastic. And I think, you know, the more information you can be armed with in those sort of negotiations, you know, the better position you'll be in at the end of the day. Look, I think that's been fantastic, Janine, is there anything else you'd like to highlight about the Milk Value Portal that we might have missed? 

 

Janine Waller: I think you've covered, or as you’ve said, we've had an opportunity to cover everything. The key thing, obviously, is where to go to find out about the Milk Value Portal. So it's milkvalue.com.au, but as you said, I mean, it's really there… it's a key resource for farmers to really help them understand the factors that are affecting milk price and the expected value of raw milk in each season, both the current and the next season, and the market factors that are influencing it. And it's ultimately there to try to build trust and transparency and really facilitate those better on-farm business decisions, so it’s really encouraging listeners to get on to the Milk Value Portal, provide the feedback. The data, as you said, is going to be available as soon after the 1st of June as possible, so it'll be easily accessible in terms of the pricing and the contract terms, and we just look forward to feedback and hopefully, as you said, this season's strong opening prices will be a reflection and start to turn the wave of the milk pool and the investment in the milk pool and people being attracted back into the industry. 

 

Sheena Carter: Yes, well and truly, let's hope so. I think, Janine, it's been wonderful speaking with you and I think the industry has come a long way in the last couple of years, both with the mandatory code and, you know, the work that you're doing around transparency to make sure people can, you know, go into these things with their eyes open and have resources there that will help their understanding. So thank you very much for your time today and for participating in the podcast with me. It's been greatly appreciated. 

 

Janine Waller: Fantastic, thanks Sheena, I’ve really enjoyed it. 

 

Sheena Carter: Thank you. 

 

Thank you for listening to this month's The Business of Dairy Podcast, produced by the New South Wales Department of Primary Industries Dairy Business Advisory Unit. This series is also brought to you with funding and support from the Hunter Local Land Services. Links in this episode’s show notes will take you to the Milk Value Portal and some of the specific tools mentioned in the podcast. There is also a link to Dairy Australia's Situation and Outlook Report and the New South Wales DPI dairy web page with links to the milk supply agreements for most processors in New South Wales. As Janine and I discussed, if you are a dairy farmer and want to understand what the milk price announcement means for you specifically, please obtain a milk income estimate from the processors. We'd love you to share this podcast with your networks and feel free to send any feedback or suggestions for future episodes to thebusinessofdairy@gmail.com. You can also subscribe to our New South Wales DPI Dairy Facebook and DPI Livestock Twitter feed and view or subscribe to our quarterly DPI Dairy newsletter using the links provided.