Com­mod­ity Milk Value holds ground

Dairy News Australia - - MARKETS -

THE COM­MOD­ITY Milk Value (CMV) held its ground in June, as spot prices for most com­mod­ity groups lifted but were coun­tered as the Aus­tralian dol­lar strength­ened against the US dol­lar.

But­ter con­tin­ued as the big mover in prod­uct prices, lift­ing more than US$300/t to al­most US$5,800/t as short­ages kept prices at dizzy heights. Spot prices for ched­dar lifted US$225/t, Skim milk pow­der (SMP) lifted US$150/t but whole milk pow­der (WMP) shed al­most US$300/t to US$3,050/t as the like- li­hood of a crack­ing sea­son ahead in New Zealand will bring more prod­uct sup­ply.

Based on these move­ments in ma­jor com­mod­ity prices over April, the com­mod­ity milk value went up … and fell back, end­ing the month un­changed at $5.95/kgms.

Look­ing ahead, down­side risks out­weigh the up­side for the CMV with more prod­uct avail­able in the se­cond half of the year from Europe and NZ, but tim­ing of the ex­pected weaken but­ter- fat prices is un­clear as prices re­main way ahead of fun­da­men­tal logic. The Aus­tralian dol­lar isn’t help­ing - trend­ing higher as June fin­ished, once again more closely track­ing iron ore prices rather than re­flect­ing hopes the US dol­lar will power on.

About the Com­mod­ity Milk Value

Fre­sha­genda’s ap­proach to as­sess­ing milk price out­looks recog­nises there are two com­po­nents of 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.

The com­mod­ity milk value (CMV) mea­sure­ment and out­look is based on spot prices and Fre­sha­genda’s fore­cast fun­da­men­tal value of ma­jor com­mod­ity prod- ucts (cheese, but­ter, whole and skim milk pow­der), based on our rolling out­look for the global dairy trade bal­ance. Pro­jected prod­uct val­ues are con­verted into a value of milk at far­m­gate us­ing the in­dus­try’s prod­uct mix, de­duct­ing con­ver­sion costs, and con­vert­ing to Aus­tralian dol­lars per kilo­gram of milk­solids. Be­tween 2011/12 and 2015/16 the CMV has av­er­aged over 80% of fi­nal far­m­gate re­turns – rang­ing be­tween 70% and 95% of the fi­nal av­er­age price paid by man­u­fac­tur­ers in south­ern Aus­tralia.

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