Milk Price III

mf240

rangler1 wrote: »

What else is new,you're just not protected by quota anymore.

That's a fierce chip you have on you shoulder rangler. Why don't ya buy a herd of cow's or would th st be to much like work

Water John

I believe there should be a good return to the farmer for his/her milk. I don't like the yoyo prices of over exposure to world markets. But I certainly believe it has been curtailed a few cent by our processors in the last while.
Sadly, some farmers here agree with that concept.

See butter is what's floating the milk price. In a Centra shop the other day. Centra butter was 2.25/lb and Branded butter, not Kerrygold, was 3.15/lb.
Which do you want your milk price attached to?

hurling_lad

kowtow wrote: »

I'd differ with you on that.

If schemes depend on past participation then eventually you will end up with two tier pricing where you have fixed suppliers on longer term fixed prices - and everyone else on "spot". The spot suppliers will always have to make up the shortfall in the fixed schemes when the co-op got it's bets wrong on market prices. That would be an invidious situation, particularly if the spot suppliers are also tied in by an MSA (in other words compelled to take other peoples betting losses because they refused or were unable to join the same bet).

That's not a hedging tool.

If schemes are transparent and open to all, and most importantly matched by supply contracts up the chain, then they are a great thing.

If that happens and a farmer - as in your example - fixed high(ish) and prices dropped then it is not the co-op or his fellow farmers taking the loss, but the customer upstream who is locked into the higher priced contract. The farmer takes the profit. If prices rise in the meantime the farmer is missing out on a peak price, perhaps, but has security and the upstream customer has saved a bit of money.

I'm not sure if it should be necessary for the processors to 'sell on' all of the fixed milk price risk to either their customers or, say, futures markets as it may be a hedging tool that they use internally (prompted perhaps by their banks). Yes, it will cost them when milk prices fall, but it does create a ceiling price on part of their milk supply when prices increase and so smooths out the effect of the cycle to some extent.

Also, I don't think that any processor has fixed a big enough proportion of their milk supply at generous enough terms whereby any possible downside couldn't be covered by reserves.

Buford T. Justice XIX

kowtow wrote: »

I'd differ with you on that.

If schemes depend on past participation then eventually you will end up with two tier pricing where you have fixed suppliers on longer term fixed prices - and everyone else on "spot". The spot suppliers will always have to make up the shortfall in the fixed schemes when the co-op got it's bets wrong on market prices. That would be an invidious situation, particularly if the spot suppliers are also tied in by an MSA (in other words compelled to take other peoples betting losses because they refused or were unable to join the same bet).

That's not a hedging tool.

If schemes are transparent and open to all, and most importantly matched by supply contracts up the chain, then they are a great thing.

If that happens and a farmer - as in your example - fixed high(ish) and prices dropped then it is not the co-op or his fellow farmers taking the loss, but the customer upstream who is locked into the higher priced contract. The farmer takes the profit. If prices rise in the meantime the farmer is missing out on a peak price, perhaps, but has security and the upstream customer has saved a bit of money.

Great post, kowtow.

I could even live with supporting those on fixed price contracts when the price tanks if the same was forthcoming when the price peaks.

But it won't.

It looks like 'heads you win, tails I lose' scenario.

Farmer Ed

Look in all fairness this fixed pricing has nothing to do with forward selling. Product has been forward sold long before fixed pricing. Honesty to understand the basic principle of it. Buy a bar of chocolate or an apple tart or something that can be divided. That is the way a co op was meant to work. If one person gets less the other person gets more and visa versa. It really is that simple.

rangler1

mf240 wrote: »

That's a fierce chip you have on you shoulder rangler. Why don't ya buy a herd of cow's or would th st be to much like work

It was posted in the spirit of the post it quoted, don't tell me that you condone the anti processor sh.... that some put up here.
If it's such a ripoff there should be no problem for one of the critics to head off and sell a few thousand ton of Powder/cheese in europe to show them how its done or like me and dairying would that be too much work

Farmer Ed

rangler1 wrote: »

It was posted in the spirit of the post it quoted, don't tell me that you condone the anti processor sh.... that some put up here.
If it's such a ripoff there should be no problem for one of the critics to head off and sell a few thousand ton of Powder/cheese in europe to show them how its done or like me and dairying would that be too much work

To be fair rangler while you are entitled to your opinion. As a non dairy farmer it would be difficult for you or anyone to have practical experience of some of the antics some of our processor's have tied over the last couple of years. But you do come across as enjoying the prospect of a fall in dairying profitability. MF has a point.

kowtow

hurling_lad wrote: »

I'm not sure if it should be necessary for the processors to 'sell on' all of the fixed milk price risk to either their customers or, say, futures markets as it may be a hedging tool that they use internally (prompted perhaps by their banks). Yes, it will cost them when milk prices fall, but it does create a ceiling price on part of their milk supply when prices increase and so smooths out the effect of the cycle to some extent.

Also, I don't think that any processor has fixed a big enough proportion of their milk supply at generous enough terms whereby any possible downside couldn't be covered by reserves.

In which case why not just put everyone on the fixed price scheme and explain as per your post? My understanding was that the fixed price schemes were a pass-through of fixed price contracts with customers including Ornua?

It's one thing for the co-op to build up or deplete reserves by paying conservatively (or generously) in a given month by comparison with the market - in other words making more or less profit on behalf of it's members - it's another thing entirely to use those reserves, which belong to all members, to subsidise a fixed price scheme for a limited subset of members - especially if you dress it up as a sophisticated volatility tool, which it is not.

The purpose of hedging is to trade risk with a counter party whose interests are opposite to your own, not identical.

If that is what they are at they need to be fired, or taught some basic financial principles, before any real damage is done.

Edit: For the sake of completeness, there is a case where a form of hedging could work within a single processor - where farmers on the fixed price schemes lose out at the peaks of the market, and the co-op reserves are increased as a result, and that increase is passed on to the "spot" farmers by way of an over-generous milk price. That is more or less the UK system as I understand it but it can't work properly unless the spot farmer is free to supply more than one processor - otherwise the processor has no incentive to increase the spot price to secure the supply.

rangler1

Farmer Ed wrote: »

To be fair rangler while you are entitled to your opinion. As a non dairy farmer it would be difficult for you or anyone to have practical experience of some of the antics some of our processor's have tied over the last couple of years. But you do come across as enjoying the prospect of a fall in dairying profitability. MF has a point.

I would be endeavouring to be doing something about it if it affected me and your vague accusations are correct,
As i have dairy farmer tenant now and likely will have another one next year I certainly won't be looking for a reduction in prices

Keepgrowing

kowtow wrote: »

In which case why not just put everyone on the fixed price scheme and explain as per your post? My understanding was that the fixed price schemes were a pass-through of fixed price contracts with customers including Ornua?

It's one thing for the co-op to build up or deplete reserves by paying conservatively (or generously) in a given month by comparison with the market - in other words making more or less profit on behalf of it's members - it's another thing entirely to use those reserves, which belong to all members, to subsidise a fixed price scheme for a limited subset of members - especially if you dress it up as a sophisticated volatility tool, which it is not.

The purpose of hedging is to trade risk with a counter party whose interests are opposite to your own, not identical.

If that is what they are at they need to be fired, or taught some basic financial principles, before any real damage is done.

Edit: For the sake of completeness, there is a case where a form of hedging could work within a single processor - where farmers on the fixed price schemes lose out at the peaks of the market, and the co-op reserves are increased as a result, and that increase is passed on to the "spot" farmers by way of an over-generous milk price. That is more or less the UK system as I understand it but it can't work properly unless the spot farmer is free to supply more than one processor - otherwise the processor has no incentive to increase the spot price to secure the supply.

There is a cap on the up as there's a floor on the down

kowtow

Keepgrowing wrote: »

There is a cap on the up as there's a floor on the down

Sure, and I don't think anyone disagrees that a co-op ought to be free to provide some cushion against the extremes of market prices by means of it's balance sheet. It follows that to do that, it must make some margin on milk and part of that would be paying a price that is a little inside the market, at the peaks, so that it has a little in the tank when the troughs come.

The question is whether or not those reserves, built up by every supplier, ought to be wagered by the co-op in a bet by one group of suppliers (those in a given fixed price scheme) against another group (those who are not).

Keepgrowing

kowtow wrote: »

Sure, and I don't think anyone disagrees that a co-op ought to be free to provide some cushion against the extremes of market prices by means of it's balance sheet. It follows that to do that, it must make some margin on milk and part of that would be paying a price that is a little inside the market, at the peaks, so that it has a little in the tank when the troughs come.

The question is whether or not those reserves, built up by every supplier, ought to be wagered by the co-op in a bet by one group of suppliers (those in a given fixed price scheme) against another group (those who are not).

My post was in reference to your comment re fixed price 'cap and floor'. I may have misunderstood

Curious as to where this idea of co op funds being used as part of fixed schemes?

Water John

As Kowtow says, a number of similar things being confused. The 'Irish' model of fixed pricing, as practised by our processors, is not forward hedging with a third party, which would be any accountants/trader's understanding.

If, on the other hand they want to nullify or limit the peaks and troughs of a volatile price to the farmer, they should say that.
A better and more transparent method would be to declare a forward price. This could be slightly conservative, with a full final adjustment to follow.

Farmer Ed

rangler1 wrote: »

I would be endeavouring to be doing something about it if it affected me and your vague accusations are correct,
As i have dairy farmer tenant now and likely will have another one next year I certainly won't be looking for a reduction in prices

Glad to hear that. I look forward to you supporting the financial wellbeing of your tenants.

kowtow

Keepgrowing wrote: »

My post was in reference to your comment re fixed price 'cap and floor'. I may have misunderstood

Curious as to where this idea of co op funds being used as part of fixed schemes?

I'm curious too as I had understood the fixed schemes to be a result of external fixed customer contracts - many (most?) of which originated with Ornua? It may be that the balance sheets aren't being used.

I think everyone here is making valid points and I'm encouraged to see the discussion happening at all. If we are to be price takers - and as a country we certainly are for the foreseeable future - then the volatility mechanisms we use are one area over which as farmers we do have control. They are far from simple for the co-ops as much as for the producers and they take a long time to become a functional part of the picture. It's notoriously difficult to get hedging contracts off the ground because everyone tends to be looking for one side of the risk at the same time (eg. trying to sell a two year fix at 29c today would be like trying to sell an umbrella on a sunny August day).

I have some sympathy with Ed's oft stated view that a co-op is a co-op, for better or worse, and we depart from that simple shared risk model at our peril.

But if we are going to have ever more complex supply arrangements - we had better work hard to understand the detail and to push the co-ops on keeping them transparent. Going back to Ed's point for a moment I think the least one can do (as co-op members) is make sure we know who is taking the other side of the ticket when we are gaining or losing as a result of a price fix, and be comfortable with that decision.

Farmer Ed

http://www.farmersjournal.ie/plans-to-address-dairy-labour-shortage-launched-282301 the elephant in the room. The average dairy farmer age is now 58. "6000 new farmers needed in the next 10 years".Will they meet this target?

jaymla627

Farmer Ed wrote: »

http://www.farmersjournal.ie/plans-to-address-dairy-labour-shortage-launched-282301 the elephant in the room. The average dairy farmer age is now 58. "6000 new farmers needed in the next 10 years".Will they meet this target?

Its car crash stuff some of the suggestions teagasc are coming out with, the latest about emergency training courses for non-European workers coming in from god knows where is pretty out their, the huge uptake in robots is a great indicator of what a chronic shortage of labour is out their at the minute

Buckmickley

Yeah follow my road 5 or 6 miles either direction and there's 11 dairy farms
3 are under 35
Ones about 45
The rest are grandfathers

Farmer Ed

jaymla627 wrote: »

Its car crash stuff some of the suggestions teagasc are coming out with, the latest about emergency training courses for non-European workers coming in from god knows where is pretty out their, the huge uptake in robots is a great indicator of what a chronic shortage of labour is out their at the minute

Even labour a side the age profile is not sustainable. Sure there will be young farmers coming in , but is it likely they will be at a rate to replace the older farmers who inspire of their best intentions can not keep going for ever. The non EU labour sounds like code for access to cheap labour. The reality is food production has been reduced to being considered a low paid job.

jaymla627

Farmer Ed wrote: »

Even labour a side the age profile is not sustainable. Sure there will be young farmers coming in , but is it likely they will be at a rate to replace the older farmers who inspire of their best intentions can not keep going for ever. The non EU labour sounds like code for access to cheap labour. The reality is food production has been reduced to being considered a low paid job.

Have first hand expirence of trying to work with and manage cheap labour like teagasc are raving about when I was abroad, a trained monkey would be a better bet in a lot of cases, with the ever increasing paper trail and hoops that have to be jumped through for all the bord bia crap how does this tie in with cheap non-English speaking workers....
When the dust settles in a few years time the appetite for lads to keep soldiering on milking big numbers of cows with minimal outside labour might change

whelan2

jaymla627 wrote: »

Have first hand expirence of trying to work with and manage cheap labour like teagasc are raving about when I was abroad, a trained monkey would be a better bet in a lot of cases, with the ever increasing paper trail and hoops that have to be jumped through for all the bord bia crap how does this tie in with cheap non-English speaking workers....
When the dust settles in a few years time the appetite for lads to keep soldiering on milking big numbers of cows with minimal outside labour might change

I don't think it Will take a few years reality is hitting big time already.

yewtree

jaymla627 wrote: »

Have first hand expirence of trying to work with and manage cheap labour like teagasc are raving about when I was abroad, a trained monkey would be a better bet in a lot of cases, with the ever increasing paper trail and hoops that have to be jumped through for all the bord bia crap how does this tie in with cheap non-English speaking workers....
When the dust settles in a few years time the appetite for lads to keep soldiering on milking big numbers of cows with minimal outside labour might change

Worked in nz mainly with lads from Philippines, absolutely brilliant lads great workers and stockmen. Always a bit of Craic aswell.
The attitude lads have to labour is terrible, I don't see anything wrong with foreign staff provided they are treated well

pedigree 6

whelan2 wrote: »

I don't think it Will take a few years reality is hitting big time already.

Last year and this year are like greyhound racing when the greyhound catches the electric hare. The greyhound has been dreaming of this moment all it's life and when it finally does it, it finds out that all it is, is a stuffed rabbit. Then the greyhound wonders what he did with his life.

Speaking to someone in the dairy farmer service industry and they are seeing some people go on once a day milking or cutting back in numbers after the free for all last year.
Quality of life is the new buzzphrase now.

Broken knees and hips are sooo last year.

einn32

http://www.weeklytimesnow.com.au/agribusiness/dairy/murray-goulburn-makes-loyalty-pay-with-supplier-bonus/news-story/bfbc73fc3d1ee3e56f36e8335d545b56

Murray Goulburn being nice!

mahoney_j

whelan2 wrote: »

I don't think it Will take a few years reality is hitting big time already.

+1

boggerman1

It was always going to come to this and the burnout rate will be massive.some never seem to have enough and its follow the teagasc/ifj line bigger is better and the rest of us milking less than 100 are just in the way.

Farmer Ed

The problem this is the reality of a cheap food policy and as farmers we have fallen for it hook line and sinker. The traditional family farm as we have known it is no longer considered of any value to society. The reality is there is many the good person out there contributing a lot to society at large, whose first real university was being reared on a farm. Will we be all the poorer as a society if working family farms as we know them become a thing of the past?

jaymla627

yewtree wrote: »

Worked in nz mainly with lads from Philippines, absolutely brilliant lads great workers and stockmen. Always a bit of Craic aswell.
The attitude lads have to labour is terrible, I don't see anything wrong with foreign staff provided they are treated well

Fully agree that a lot of Irish farmers are no way equipped to handle our manage staff they simply have never acquired this skill set and in all likelihood never will, but throw on top of this foreign staff with poor English and it's a recipe for disaster, it's a mute point anyways as the plethora of visa issues would put pay to it fairly quickly

Farmer Ed

jaymla627 wrote: »

Fully agree that a lot of Irish farmers are no way equipped to handle our manage staff they simply have never acquired this skill set and in all likelihood never will, but throw on top of this foreign staff with poor English and it's a recipe for disaster, it's a mute point anyways as the plethora of visa issues would put pay to it fairly quickly

The thing is if farmers here could afford to pay staff and treat them well we wouldn't be so totally dependent on needing foreign staff. People would be queuing up to work on farms. Sadly foreign staff usually means the Irish don't want to do the job because they can make easier money elsewhere.

kowtow

Meanwhile in America... one in four households now buys organic milk.

I can't help thinking sometimes that we are walking away from our competitive strengths towards something which is the polar opposite of sustainable.

As an industry we already accept that we are competitive only when the cost of our own labour is disregarded. To suggest that the solution is to bring labour from New Zealand in order to ship milk to China is mind boggling.