Following the abolition of milk quotas in 2015, dairy farmers have seen the full effect of milk price volatility.
Milk price has moved from varying between 4c/l year to year to 15c/l.
Speaking at a conference organised by the Lismullin Institute in Co Meath, local dairy farmer and Nuffield scholar Peter Farrell presented findings from his report into how Irish farmers can manage milk price volatility.
Peter said he found there was no one solution, but rather a suite of measures that needed to be employed.
He presented his findings through a case study of 'Farmer Leo'.
Leo was:
a recent new entrant, on a leased farm, milking 200 cows, a debt level of €3,000/cow,no direct payments,and had a wife and young family. Breakeven cost
Peter said one of the most important things any farmer could do was calculate their breakeven cost of production.
In Leo’s case, this was 32c/l, based on:
1m litres sold, protein of 3.4% and fat of 4%, drawings of €50,000, capital repayments of €50,000,e-profit monitor dairy costs of 22c/l.Working on a high base milk price of 41c/l and a low price of 21c/l, Peter calculated that five volatility management measures could reduce Leo’s price swings from 20c/l down to 3.5c/l.
Low base price
Firstly, Leo increased his milk constituents to 3.6% protein and 4.2% fat, which was worth an extra 2c/l (at the higher base price this was worth 4c/l). He also hedged 30% of his milk into a fixed milk price scheme set at 31c/l, adding 3c/l.
Outside of the farm gate, it was envisaged the co-op would provide a support of 1c/l.
Two other methods to control volatility also identified by Peter were a volatility loan scheme and a tax deposit scheme, from which €25,000 would be drawn down. These would add another 5c/l to Leo’s milk price.
Using all five together increased Leo’s milk price from 21c/l to 32c/l, ensuring he broke even for the year.
High base price
On the other side of the coin, a high base price of 41c/l saw Leo repaying much of the supports he had availed of, namely the loan, costing him 3c/l and placing €25,000 back in the tax deposit scheme.
His fixed milk would also see him lose 3c/l.
Overall, his milk price per litre would drop from 41c/l to 35.5c/l in this scenario.
However, the variation from one year to the next would drop by 16.5c/l.
Following the abolition of milk quotas in 2015, dairy farmers have seen the full effect of milk price volatility.
Milk price has moved from varying between 4c/l year to year to 15c/l.
Speaking at a conference organised by the Lismullin Institute in Co Meath, local dairy farmer and Nuffield scholar Peter Farrell presented findings from his report into how Irish farmers can manage milk price volatility.
Peter said he found there was no one solution, but rather a suite of measures that needed to be employed.
He presented his findings through a case study of 'Farmer Leo'.
Leo was:
a recent new entrant, on a leased farm, milking 200 cows, a debt level of €3,000/cow,no direct payments,and had a wife and young family. Breakeven cost
Peter said one of the most important things any farmer could do was calculate their breakeven cost of production.
In Leo’s case, this was 32c/l, based on:
1m litres sold, protein of 3.4% and fat of 4%, drawings of €50,000, capital repayments of €50,000,e-profit monitor dairy costs of 22c/l.Working on a high base milk price of 41c/l and a low price of 21c/l, Peter calculated that five volatility management measures could reduce Leo’s price swings from 20c/l down to 3.5c/l.
Low base price
Firstly, Leo increased his milk constituents to 3.6% protein and 4.2% fat, which was worth an extra 2c/l (at the higher base price this was worth 4c/l). He also hedged 30% of his milk into a fixed milk price scheme set at 31c/l, adding 3c/l.
Outside of the farm gate, it was envisaged the co-op would provide a support of 1c/l.
Two other methods to control volatility also identified by Peter were a volatility loan scheme and a tax deposit scheme, from which €25,000 would be drawn down. These would add another 5c/l to Leo’s milk price.
Using all five together increased Leo’s milk price from 21c/l to 32c/l, ensuring he broke even for the year.
High base price
On the other side of the coin, a high base price of 41c/l saw Leo repaying much of the supports he had availed of, namely the loan, costing him 3c/l and placing €25,000 back in the tax deposit scheme.
His fixed milk would also see him lose 3c/l.
Overall, his milk price per litre would drop from 41c/l to 35.5c/l in this scenario.
However, the variation from one year to the next would drop by 16.5c/l.
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