Looking beyond the headline price

Published 24 October 16

Philippine -stock -market -boardDairy farmers, attracted by the recent upturn in milk prices, may be thinking now is a good time to switch contracts and realise better returns. However, decisions made solely on the headline price risk longer term consequences when those prices fall just as quickly as they have risen.

AHDB Dairy has looked at the extent to which different milk contracts are affected by the movements on commodity markets and therefore how quickly price movements feed through to farmgate prices.

The analysis found that manufacturing contracts most closely follow short-term movements in commodity markets. These contracts saw prices drop by between 35%-50% during the downturn, while prices paid on aligned contracts fell by 9%-20%.

Patty Clayton, Senior Dairy Analyst said, “Understanding how farmgate milk prices are influenced by commodity markets gives farmers valuable information on which to base future plans. It’s about looking past the headline price and reviewing how your milk price performs throughout the market cycle. This allows farmers to take an appropriately long view of prices and costs, and build some resilience to short term market imbalances into the farm business.”

To help farmers plan for the future, AHDB offer a range of practical support and tools such as the Milk Price Calculator, which enables farmers to compare the price they can achieve for their milk across a range of contracts.