Farm Ireland
Independent.ie

Wednesday 7 December 2016

‘Milk price volatility between 20-40c/l is here to stay’

Ann Fitzgerald

Published 10/05/2016 | 02:30

TJ Flanagan, ICOS CEO
TJ Flanagan, ICOS CEO

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.

  • Go To

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.

Seasonal

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.

Also Read


TJ Flanagan from ICOS said volatility in the range of 20-40c/l is “here to stay” and while we can’t alter volatility, the challenge is to protect farmers from the worst aspects of it.

“It’s not about beating  the market - it is about being able to sleep at night over five-10 years,” he said.

Mr Flanagan said the medium- to long-term outlook remains positive but warned a very difficult year lies ahead.

“The industry is in a much better place now compared to the last price crisis in 2009,” he said.

“The fact that prices have been kept at a reasonable level up to now proves this. But it’s going to be hard to hold back the tide for much longer,” he added.

IFA president Joe Healy said that farmers are shouldering too much of the burden of

market volatility and need access to more tools such as taxation measures to restore stability.

Last year Ornua delivered an annual member’s bonus of €29m, which worked out at 1c/l.  It also announced the recent suspension of its milk levy.

Indo Farming