Hot on the heels of Glanbia rolling out its five-year fixed milk and feed price scheme, midlands-based J Grennan and Sons is offering a five-year fixed milk price scheme to its customers. The scheme is open to Glanbia milk suppliers who are also existing customers of the family-run agri-merchant and feed business. Grennans are offering the scheme to any of their customers who have been refused a fixed milk price contact by Glanbia because they opted to buy their dairy herd feed from them in the past or may choose to purchase feed elsewhere in the future. The innovative scheme will see Grennans pay a base milk price of 31.5c/l including VAT (29.8c/l excl VAT) at 3.3% protein and 3.6% fat over a five-year term.
This scheme, which is the first of its kind, will not see Grennans buying physical milk and processing it; rather the milk will continue to be supplied to Glanbia. If a farmer signs up to this scheme, it will see them receive a price of 31.5c/l for an agreed (up to 20%) portion of their milk for five years.
If the average Glanbia base milk price over the term dips under Grennans’ price, Grennans will pay the farmer the difference.
However, if the average Glanbia base milk price over the term exceeds Grennans’ price, the farmer must pay Grennans the difference. For example, if the average base price received from Glanbia is 30c/l, Grennan will top this up by 1.5c/l. Similarly, if the average base price is 33c/l from Glanbia, the farmer must pay Grennans 1.5c/l. Effectively, the farmer is locked in at 31.5c/l and protected from how the market performs -– similar to any fixed milk price scheme.
The scheme is solely targeted at Grennans’ customers who are Glanbia suppliers and may be tempted to sign up to the most recent Glanbia fixed price scheme of 31c/l base including VAT (29.4c/l excl VAT) for five years. Despite offering a €30/t discount on feed, this scheme has been divisive due to the original requirement to commit 100% of the dairy herd feed needs for five years – even though only 20% of milk may be committed.
Since the launch, Glanbia has rolled back and now provides an option to opt out of the feed element after two years. This scheme was due to close for applications on 18 October.
It is expected the Grennans scheme will put pressure on Glanbia. On top of the higher milk price offered (0.5c/l), Grennans has said there is no obligation for a farmer to commit or lock into any feed contract.
How this fixed milk scheme will work
1 Grennans will provide a hedge that effectively fixes the price of a portion of the milk sold by a dairy supplier to Glanbia.
2 Grennans will not buy the milk and the milk continues to be supplied to Glanbia.
3 The price at which the hedge is being fixed is on a base price of 31.5c/l (including VAT) for milk of 3.3% protein and 3.6% fat.
4 The price is fixed on a monthly basis for a period of five years starting on 1 November 2017 and ending 30 October 2022.
5 The volume of milk will be determined by the quantity supplied by the farmer between 1 November 2016 and 31 October 2017.
6 The percentage will be agreed from this volume up to a maximum of 20% of total supply. Thereafter, the volume will be calculated on a monthly basis with the farmer from the milk statements for the five-year duration of the contract.
7 In the event where the Glanbia base price falls below the Grennans’ hedge price (31.5c/l), Grennans will pay the farmer the difference. Similarly, in the event where Glanbia’s base price is above 31.5c/l, the farmer will pay Grennans the difference.
8 Both the farmer and Grennans will enter into a contract agreement which will see the hedge settled every four months. Given that the start date will be 1 November 2017, the first settlement will be calculated and paid before 31 March 2018.
9 It will be paid based on the production of milk as outlined on the Glanbia milk statements for the previous four months from November 2017 to February 2018.
10 This process is to be repeated every four months for the duration of the five years finishing with the settlement of 1 July to 31 October 2022 statements in November 2022.
11 As with any contract, the terms outline that should a farmer fail to provide milk statements and/or make payments as required by the terms of this agreement, this will release Grennans from any obligations whatsoever.
12 The offer will be available on a first-come, first-served basis.
This is the first scheme where a feed provider offers a milk price, effectively creating a new buyer for milk and more competition in the market. It is likely to challenge the milk price offered by dairy processors/co-ops.It provides a level of support to dairy farming customers of feed merchants and rewards loyalty. It provides another option to farmers to lock in a price for a portion of their milk outside the Glanbia fixed-price scheme. Farmers cannot apply for both.The price is 0.5c/l higher than Glanbia’s current fixed-milk-price scheme. For a farmer with 100 cows yielding 5,000l, this amounts to an extra €2,500 over Glanbia’s scheme for five years. It provides an option to farmers who do not want to tie in 100% of their dairy herd feed needs for two years with Glanbia.The Glanbia feed discount is eliminated due to the higher milk price Grennans is offering. For example, based on a feeding rate of 0.5t to 1t for a 5000l cow, Glanbia’s €30/t discount, amounts to 0.3c/l to 0.6c/l. As there is no back-to-back sale for Grennans, the company could have an element of downside risk. For example, should average milk price fall below 31.5c/l (the past five-year average), this will come from Grennan profits. For farmers, the challenge will be writing a cheque for the difference above a 31.5c/l average at the end of a quarter where a higher base price for milk has been received. This may be a bitter pill to swallow for many farmers. Although the outcome is the same, under the Glanbia scheme farmers never had sight of the money in the first place.
Hot on the heels of Glanbia rolling out its five-year fixed milk and feed price scheme, midlands-based J Grennan and Sons is offering a five-year fixed milk price scheme to its customers. The scheme is open to Glanbia milk suppliers who are also existing customers of the family-run agri-merchant and feed business. Grennans are offering the scheme to any of their customers who have been refused a fixed milk price contact by Glanbia because they opted to buy their dairy herd feed from them in the past or may choose to purchase feed elsewhere in the future. The innovative scheme will see Grennans pay a base milk price of 31.5c/l including VAT (29.8c/l excl VAT) at 3.3% protein and 3.6% fat over a five-year term.
This scheme, which is the first of its kind, will not see Grennans buying physical milk and processing it; rather the milk will continue to be supplied to Glanbia. If a farmer signs up to this scheme, it will see them receive a price of 31.5c/l for an agreed (up to 20%) portion of their milk for five years.
If the average Glanbia base milk price over the term dips under Grennans’ price, Grennans will pay the farmer the difference.
However, if the average Glanbia base milk price over the term exceeds Grennans’ price, the farmer must pay Grennans the difference. For example, if the average base price received from Glanbia is 30c/l, Grennan will top this up by 1.5c/l. Similarly, if the average base price is 33c/l from Glanbia, the farmer must pay Grennans 1.5c/l. Effectively, the farmer is locked in at 31.5c/l and protected from how the market performs -– similar to any fixed milk price scheme.
The scheme is solely targeted at Grennans’ customers who are Glanbia suppliers and may be tempted to sign up to the most recent Glanbia fixed price scheme of 31c/l base including VAT (29.4c/l excl VAT) for five years. Despite offering a €30/t discount on feed, this scheme has been divisive due to the original requirement to commit 100% of the dairy herd feed needs for five years – even though only 20% of milk may be committed.
Since the launch, Glanbia has rolled back and now provides an option to opt out of the feed element after two years. This scheme was due to close for applications on 18 October.
It is expected the Grennans scheme will put pressure on Glanbia. On top of the higher milk price offered (0.5c/l), Grennans has said there is no obligation for a farmer to commit or lock into any feed contract.
How this fixed milk scheme will work
1 Grennans will provide a hedge that effectively fixes the price of a portion of the milk sold by a dairy supplier to Glanbia.
2 Grennans will not buy the milk and the milk continues to be supplied to Glanbia.
3 The price at which the hedge is being fixed is on a base price of 31.5c/l (including VAT) for milk of 3.3% protein and 3.6% fat.
4 The price is fixed on a monthly basis for a period of five years starting on 1 November 2017 and ending 30 October 2022.
5 The volume of milk will be determined by the quantity supplied by the farmer between 1 November 2016 and 31 October 2017.
6 The percentage will be agreed from this volume up to a maximum of 20% of total supply. Thereafter, the volume will be calculated on a monthly basis with the farmer from the milk statements for the five-year duration of the contract.
7 In the event where the Glanbia base price falls below the Grennans’ hedge price (31.5c/l), Grennans will pay the farmer the difference. Similarly, in the event where Glanbia’s base price is above 31.5c/l, the farmer will pay Grennans the difference.
8 Both the farmer and Grennans will enter into a contract agreement which will see the hedge settled every four months. Given that the start date will be 1 November 2017, the first settlement will be calculated and paid before 31 March 2018.
9 It will be paid based on the production of milk as outlined on the Glanbia milk statements for the previous four months from November 2017 to February 2018.
10 This process is to be repeated every four months for the duration of the five years finishing with the settlement of 1 July to 31 October 2022 statements in November 2022.
11 As with any contract, the terms outline that should a farmer fail to provide milk statements and/or make payments as required by the terms of this agreement, this will release Grennans from any obligations whatsoever.
12 The offer will be available on a first-come, first-served basis.
This is the first scheme where a feed provider offers a milk price, effectively creating a new buyer for milk and more competition in the market. It is likely to challenge the milk price offered by dairy processors/co-ops.It provides a level of support to dairy farming customers of feed merchants and rewards loyalty. It provides another option to farmers to lock in a price for a portion of their milk outside the Glanbia fixed-price scheme. Farmers cannot apply for both.The price is 0.5c/l higher than Glanbia’s current fixed-milk-price scheme. For a farmer with 100 cows yielding 5,000l, this amounts to an extra €2,500 over Glanbia’s scheme for five years. It provides an option to farmers who do not want to tie in 100% of their dairy herd feed needs for two years with Glanbia.The Glanbia feed discount is eliminated due to the higher milk price Grennans is offering. For example, based on a feeding rate of 0.5t to 1t for a 5000l cow, Glanbia’s €30/t discount, amounts to 0.3c/l to 0.6c/l. As there is no back-to-back sale for Grennans, the company could have an element of downside risk. For example, should average milk price fall below 31.5c/l (the past five-year average), this will come from Grennan profits. For farmers, the challenge will be writing a cheque for the difference above a 31.5c/l average at the end of a quarter where a higher base price for milk has been received. This may be a bitter pill to swallow for many farmers. Although the outcome is the same, under the Glanbia scheme farmers never had sight of the money in the first place. 
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