‘Milk price volatility between 20-40c/l is here to stay’
Forward selling of milk through fixed price contracts can provide the same returns overall to dairy farmers whilst avoiding the drawbacks of extreme volatility, a key analyst has found.
Charlie Hyland, senior risk manager with financial services firm FC Stone, said most co-ops in the US offer farmers the opportunity to forward fix prices which makes milk returns more stable.
“When you manage risk, you give up an opportunity. So you miss out on the highs but you also avoid the extreme lows. It’s about stabilising prices.”
Several Irish milk processors have offered fixed price schemes, with Dairygold saying only seven out of 10 suppliers opted to fix this spring, while Glanbia reported strong interest.
Figures from the US showed that those who availed of fixed price contracts over a 14-year period received almost exactly the same money overall.
One of the reasons why EU farmers are currently being so badly hit by volatility is that they are relatively new to it so have not had to manage it, Mr Hyland said.
Michael Keane of UCC and formerly Teagasc said there was really no volatility, except for some slight seasonal variation, up to about 2007 and prices hovered around 30c/l but it is now operating on the global market.