Commodity Milk Value holds ground
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.