Milk Price III

Water John

See Ed, is sticking to his guns on fixed price contracts.
The late Tom Petty RIP, had a good anthem for you Ed, 'I won't back down'.

Farmer Ed

Water John wrote: »

See Ed, is sticking to his guns on fixed price contracts.
The late Tom Petty RIP, had a good anthem for you Ed, 'I won't back down'.

I may not be the smartest person in the world but understanding the basic principal of how fractions work is not rocket science. We all learned it in primary school. If one person gets more the other person gets less. Only so much cake to go around.

Water John

Ah you can't see the Brexit cake, that the Tory party could eat and still have it. A magical cake.

Farmer Ed

Water John wrote: »

Ah you can't see the Brexit cake, that the Tory party could eat and still have it. A magical cake.

Yes just like the magical money pot that will guarantee a fixed price for 10% of your milk without effecting the price of the other 90%.

alps

The glanbia calculator didn't seem to impact on this publication of milk prices, but the Nuitritional Campus in Mallow seems to be throwing out a nice few schillings for its milk.

The Irish milk price is looking well up there, compared to the start of the year..

Water John

Fair play to them. upcoming launches and VIP visits work wonders on milk price. Last time DG did that well was when the sod was being turned on that site, two years ago.

kowtow

Farmer Ed wrote: »

I may not be the smartest person in the world but understanding the basic principal of how fractions work is not rocket science. We all learned it in primary school. If one person gets more the other person gets less. Only so much cake to go around.

What you say is correct up to a point, but only up to a point.

On any given day, any co-op is able to sell virtually any volume of milk to any number of customers at a fixed price into the future. The question that the co-ops members and managers must resolve is - should they, and on what terms?

Unless the co-op is never to fix a price at all - the members must have some mechanism to decide how far they want their managers to go in betting on their behalf.

There are three ways of doing that.

1. Don't allow them to fix prices with customers ever
2. Allow them to fix prices at will, gamble on behalf of the membership, and take the gains and losses jointly and severally across all members whether they like it or not; or
3. Pass on fixed price contracts to those farmers who want to participate, presumably because they have an appetite for the risk of the price fix.

I'm afraid that is the long and the short of it.

Farmer Ed

kowtow wrote: »

Farmer Ed wrote: »

I may not be the smartest person in the world but understanding the basic principal of how fractions work is not rocket science. We all learned it in primary school. If one person gets more the other person gets less. Only so much cake to go around.

What you say is correct up to a point, but only up to a point.

On any given day, any co-op is able to sell virtually any volume of milk to any number of customers at a fixed price into the future. The question that the co-ops members and managers must resolve is - should they, and on what terms?

Unless the co-op is never to fix a price at all - the members must have some mechanism to decide how far they want their managers to go in betting on their behalf.

There are three ways of doing that.

1. Don't allow them to fix prices with customers ever
2. Allow them to fix prices at will, gamble on behalf of the membership, and take the gains and losses jointly and severally across all members whether they like it or not; or
3. Pass on fixed price contracts to those farmers who want to participate, presumably because they have an appetite for the risk of the price fix.

I'm afraid that is the long and the short of it.

Co ops have always forward sold product that is nothing new. The amount they forward sell is a call made by management at any given time depending on the way they see the market going. That is why for example it is only now we are beginning to see the lift in the price of butter being passed back to the farmer as a lot of butter was sold at a price that had been contracted with the main retailers. This always has and probably always will be a feature of how a co op gets paid for product. However trying to pretend that this is something new and a reason to now all of a sudden fix a small portion of the price to farmers is a bit misleading to say the least. The amount available in the pot to pay for farmers milk yes is influenced by the amount the co op has forward sold but ultimately the amount in that pot is not affected by an individual farmer fixing a price with the co op. There is a supple difference.

Buford T. Justice XIX

Farmer Ed wrote: »

Co ops have always forward sold product that is nothing new. The amount they forward sell is a call made by management at any given time depending on the way they see the market going. That is why for example it is only now we are beginning to see the lift in the price of butter being passed back to the farmer as a lot of butter was sold at a price that had been contracted with the main retailers. This always has and probably always will be a feature of how a co op gets paid for product. However trying to pretend that this is something new and a reason to now all of a sudden fix a small portion of the price to farmers is a bit misleading to say the least. The amount available in the pot to pay for farmers milk yes is influenced by the amount the co op has forward sold but ultimately the amount in that pot is not affected by an individual farmer fixing a price with the co op. There is a supple difference.

The processors contact a number of processors who have indicated a willingness to fix in a volume of milk products and agree with them the price they are willing to fix at for 3 years and the volume that will be supplied at that fixed price.

The processor takes out a processing cost for that volume of milk.

The processor then offers that volume of milk to the farmer at Xcent, currently 31c.

The farmer decides whether to take that offer or not.

Regardless of milk price fluctuations for the remaining volume of milk that is not fixed in the following 3 or 5 years, all three parties know the price they are receiving, the volume they are getting that price on and when the product will be delivered.

For forward contracts to work, all three parties have to be satisfied that on balance, they will be not much worse off and reasonably better off than if they had stayed playing in a fluctuating market.

If they feel shafted, they will not participate again and the idea will die a death. It is in everybodys interest that they succeed because all three parties need the others to stay in business and make reasonable profits if they themselves are to survive.

kowtow

Farmer Ed wrote: »

Co ops have always forward sold product that is nothing new. The amount they forward sell is a call made by management at any given time depending on the way they see the market going. That is why for example it is only now we are beginning to see the lift in the price of butter being passed back to the farmer as a lot of butter was sold at a price that had been contracted with the main retailers. This always has and probably always will be a feature of how a co op gets paid for product. However trying to pretend that this is something new and a reason to now all of a sudden fix a small portion of the price to farmers is a bit misleading to say the least. The amount available in the pot to pay for farmers milk yes is influenced by the amount the co op has forward sold but ultimately the amount in that pot is not affected by an individual farmer fixing a price with the co op. There is a supple difference.

So you are advocating method (2.) above, while some co-ops appear to be implementing method (3) - perhaps in addition to their normal forward selling?. For myself, I'd rather not have the co-op making bets on my behalf save in so far as it is necessary for them to sell forward simply to meet everyday commercial expectations of customers.

I stress, as I have done frequently, that transparency is needed in matching customer contracts to fixed price offers for (3) to work properly. Also, in my opinion, the existing offers are being over-complicated and potentially damaged by being turned into some kind of loyalty feature, rather than warts and all simple offers which a farmer can take or leave. On that point I am absolutely with Ed!

OTOH I can see the difficulty and frustration of introducing these contracts. They require, I think, more trust in co-op management than is present in many processors and for that management probably have themselves to blame.

Farmer Ed

Buford T. Justice V wrote: »

The processors contact a number of processors who have indicated a willingness to fix in a volume of milk products and agree with them the price they are willing to fix at for 3 years and the volume that will be supplied at that fixed price.

The processor takes out a processing cost for that volume of milk.

The processor then offers that volume of milk to the farmer at Xcent, currently 31c.

The farmer decides whether to take that offer or not.

Regardless of milk price fluctuations for the remaining volume of milk that is not fixed in the following 3 or 5 years, all three parties know the price they are receiving, the volume they are getting that price on and when the product will be delivered.

For forward contracts to work, all three parties have to be satisfied that on balance, they will be not much worse off and reasonably better off than if they had stayed playing in a fluctuating market.

If they feel shafted, they will not participate again and the idea will die a death. It is in everybodys interest that they succeed because all three parties need the others to stay in business and make reasonable profits if they themselves are to survive.

Are you aware of any processor who has fixed a price for 3 years on any product based on the volume of milk they have fixed with farmers. If so it's news to me? Do you know of one supplier who has been told that the 31c fixed for the next 3 years is directly linked to the returns from a particular contract? I am not aware of it?

whelan2

Will we see another one cent increase for September milk?

mahoney_j

whelan2 wrote: »

Will we see another one cent increase for September milk?

Yes and that may be it ,butter now probably at peak and near full effect of the butter price revolution are now been seen at retail level .be interesting to see at these high prices will butter still be in vogue

Farmer Ed

mahoney_j wrote: »

whelan2 wrote: »

Will we see another one cent increase for September milk?

Yes and that may be it ,butter now probably at peak and near full effect of the butter price revolution are now been seen at retail level .be interesting to see at these high prices will butter still be in vogue

Most likely it will level of but butter seams to be considered a healthy option again at least after a long period of everyone thinking it was going to kill them.

Buford T. Justice XIX

Phil Hogan proposes a target of 0 skim into intervention this coming year and stocks there being used for feed, if I'm understanding the article correctly?

http://m.independent.ie/business/farming/dairy/could-the-eus-giant-stocks-of-milk-powder-end-up-as-animal-feed-36213164.html?utm_content=buffer3ec33&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Farmer Ed

Buford T. Justice V wrote: »

Phil Hogan proposes a target of 0 skim into intervention this coming year and stocks there being used for feed, if I'm understanding the article correctly?

http://m.independent.ie/business/farming/dairy/could-the-eus-giant-stocks-of-milk-powder-end-up-as-animal-feed-36213164.html?utm_content=buffer3ec33&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Why am I not filled with confidence http://www.irishexaminer.com/ireland/phil-hogan-set-up-of-irish-water-not-a-mess-355839.html

hurling_lad

kowtow wrote: »

So you are advocating method (2.) above, while some co-ops appear to be implementing method (3) - perhaps in addition to their normal forward selling?. For myself, I'd rather not have the co-op making bets on my behalf save in so far as it is necessary for them to sell forward simply to meet everyday commercial expectations of customers.

I stress, as I have done frequently, that transparency is needed in matching customer contracts to fixed price offers for (3) to work properly. Also, in my opinion, the existing offers are being over-complicated and potentially damaged by being turned into some kind of loyalty feature, rather than warts and all simple offers which a farmer can take or leave. On that point I am absolutely with Ed!

OTOH I can see the difficulty and frustration of introducing these contracts. They require, I think, more trust in co-op management than is present in many processors and for that management probably have themselves to blame.

I've been following some of the discussion on the fixed-price issue on here for a bit and have to commend you, kowtow, on the quality of your contributions. There is one aspect of the financial reasons for fixed pricing, however, that I don't think has been discussed here: fixed-milk prices might make sense for processors even in the absence of matching forward selling because of the pressure that can come on working capital facilities in a high milk price year.

Now that quotas are gone, the processors are having to deal with an increasing volume of milk which, if you look at your annual milk summary(for spring calving herds), they have to pay for mainly in the summer and autumn months. The processors' revenue profile over the year is, however, relatively flat as they sell roughly even amounts of non-perishable cheese, butter and powders each month. This creates a huge requirement for working capital funding, peaking around October. This working capital is provided by the banks, but given the market volatility that we have seen in recent years, the massive funding requirement in a high milk-price year is bound to strain a processor's relationship with its lenders, who might start looking for higher interest rates to cover the higher risks involved.

Fixing the price of a portion of the milk supply should mean that there is less pressure on working capital facilities and could save the processors in interest payments.

Timmaay

whelan2 wrote: »

Will we see another one cent increase for September milk?

Yes, Glanbia are going to increase one cent on their ifj August milk league table Base price of 38 to 39c/l....

GrasstoMilk

So who's going for the 5 year fixed milk at 31c?

Farmer Ed

hurling_lad wrote: »

kowtow wrote: »

So you are advocating method (2.) above, while some co-ops appear to be implementing method (3) - perhaps in addition to their normal forward selling?. For myself, I'd rather not have the co-op making bets on my behalf save in so far as it is necessary for them to sell forward simply to meet everyday commercial expectations of customers.

I stress, as I have done frequently, that transparency is needed in matching customer contracts to fixed price offers for (3) to work properly. Also, in my opinion, the existing offers are being over-complicated and potentially damaged by being turned into some kind of loyalty feature, rather than warts and all simple offers which a farmer can take or leave. On that point I am absolutely with Ed!

OTOH I can see the difficulty and frustration of introducing these contracts. They require, I think, more trust in co-op management than is present in many processors and for that management probably have themselves to blame.

I've been following some of the discussion on the fixed-price issue on here for a bit and have to commend you, kowtow, on the quality of your contributions. There is one aspect of the financial reasons for fixed pricing, however, that I don't think has been discussed here: fixed-milk prices might make sense for processors even in the absence of matching forward selling because of the pressure that can come on working capital facilities in a high milk price year.

Now that quotas are gone, the processors are having to deal with an increasing volume of milk which, if you look at your annual milk summary(for spring calving herds), they have to pay for mainly in the summer and autumn months. The processors' revenue profile over the year is, however, relatively flat as they sell roughly even amounts of non-perishable cheese, butter and powders each month. This creates a huge requirement for working capital funding, peaking around October. This working capital is provided by the banks, but given the market volatility that we have seen in recent years, the massive funding requirement in a high milk-price year is bound to strain a processor's relationship with its lenders, who might start looking for higher interest rates to cover the higher risks involved.

Fixing the price of a portion of the milk supply should mean that there is less pressure on working capital facilities and could save the processors in interest payments.

Yes I agree it could be good for some processors who you have pointed out could well have a strained relationship with the banks. Yes it would allow such a processor to artificially inflate the average price it actually pays for milk by subsidising the the official milk price with the cheaper fixed price milk.

But hopefully not all processes are facing such difficulties.

George Sunsnow

The likes of Glanbia and Kerry would probably be getting that funding at AAA/government rates though,ie for practically nothing
Certainly 0.5% or lower
It’s no burden anyway

alps

GrasstoMilk wrote: »

So who's going for the 5 year fixed milk at 31c?

Is it still conditional on input purchases?

I reckon the rest of us are praying you guys don't sign up to this as we expect coops may follow with the same agenda of controlling input costs.

It would have been interesting if It had been a pure fixed price. Would guys fix at 4 to 5 cent below current price. It's a big ask, big question, and would love to have seen the answer.

One would expect the new year offerings from ornua would be in excess of the 31c and you would then expect a bigger uptake. You would have expected the speed wobbles to set on around 35c.

Remember on the last downturn ornua offered 34c for as much of your supply as you wanted...who would take that at present?

jaymla627

alps wrote: »

Is it still conditional on input purchases?

I reckon the rest of us are praying you guys don't sign up to this as we expect coops may follow with the same agenda of controlling input costs.

It would have been interesting if It had been a pure fixed price. Would guys fix at 4 to 5 cent below current price. It's a big ask, big question, and would love to have seen the answer.

One would expect the new year offerings from ornua would be in excess of the 31c and you would then expect a bigger uptake. You would have expected the speed wobbles to set on around 35c.

Remember on the last downturn ornua offered 34c for as much of your supply as you wanted...who would take that at present?

You can apply without taking up the meal option but will not be given priority, went in for 300k here but not taking up meal option might get 100k who knows could be very little uptake and could get a good amount....
40% of supply is fixed here for next year already, have no problem losing out next year cause I reckon 2019 late 2018 their will be a serious dip as supply ramps up worldwide given current prices and cheap grain

kowtow

hurling_lad wrote:

Fixing the price of a portion of the milk supply should mean that there is less pressure on working capital facilities and could save the processors in interest payments.

I'm sure you are right about the funding pressure on processors but I'm not sure that selling forward would make any difference.

A forward contract is only an agreement for price and time.. payment still comes as and when delivery is made.

It's possible that forward sales might help in negotiating banking facilities but only if the co-op was demonstrating guaranteed profits... which in any event can only be guaranteed at th expense of the producing farmer.

As a general rule I would have thought that coops were a pretty bankable proposition anyway, given a stable supplier base and the fact that they decide what to pay producers a month after collecting and presumably selling the product... If they find it difficult to borrow cheaply it's because of investment and product risk rather than their basic cash flow but that's another story altogether.

Keepgrowing

GrasstoMilk wrote: »

So who's going for the 5 year fixed milk at 31c?

Done

Keepgrowing

alps wrote: »

Is it still conditional on input purchases?

I reckon the rest of us are praying you guys don't sign up to this as we expect coops may follow with the same agenda of controlling input costs.

It would have been interesting if It had been a pure fixed price. Would guys fix at 4 to 5 cent below current price. It's a big ask, big question, and would love to have seen the answer.

One would expect the new year offerings from ornua would be in excess of the 31c and you would then expect a bigger uptake. You would have expected the speed wobbles to set on around 35c.

Remember on the last downturn ornua offered 34c for as much of your supply as you wanted...who would take that at present?

I'd put 100% in at 34

kowtow

Keepgrowing wrote:

I'd put 100% in at 34

Interesting.

I was going to say if it were me I would have something fixed at 31 although I'd find the inputs thing distasteful.

At 34c? No more than 90%... everyone has to have a little risk in their lives.

And not for too many years.

Butter might be back.

Keepgrowing

kowtow wrote: »

Interesting.

I was going to say if it were me I would have something fixed at 31 although I'd find the inputs thing distasteful.

At 34c? No more than 90%... everyone has to have a little risk in their lives.

And not for too many years.

Butter might be back.

We can add c5 cent with solids so 39 for 5 years id take in a heartbeat

Mooooo

Is it fixed as a percentage of current supply or a previous years supply?. I took up the first and doesn't take the second in dairygold. As it was based on previous years supply had I taken the second one a greater percentage of this years supply would have been fixed than I would have anticipated as I am down 60k plus litres due to tb. Obvious had the price dynamic being the other way round it would have been better but a sudden drop in supply due to whatever reason may want to be factored in.
The reason I didn't take the second one was timing really I may well take up a third one should it be offered

Keepgrowing

Mooooo wrote: »

Is it fixed as a percentage of current supply or a previous years supply?. I took up the first and doesn't take the second in dairygold. As it was based on previous years supply had I taken the second one a greater percentage of this years supply would have been fixed than I would have anticipated as I am down 60k plus litres due to tb. Obvious had the price dynamic being the other way round it would have been better but a sudden drop in supply due to whatever reason may want to be factored in.
The reason I didn't take the second one was timing really I may well take up a third one should it be offered

Our application was based on a % of what we forecast to supply next season