Calculating milk price from whole milk powder prices

COMMENT: Helping farmers calculate milk price from whole milk powder prices. 

Example – Whole Milk Powder (WMP)  

The latest Global Dairy Trade auction for Whole Milk Powder (WMP) lists an average winning price $5,208 USD/MT, FAS

The buyer is paying US$5,208 per metric tonne, free alongside ship (FAS). FAS means that it is the responsibility of the seller to deliver the product to a port in the country in which the product is produced. It is the responsibility/cost of the buyer to ship the product to its final destination.

Converting WMP price per tonne into a cents per Litre prices approximation  

The buyer is paying US$5,208 or €3,854 per tonne of product. To estimate this price in cents per litre we first calculate how many litres of milk is required to produce a tonne of Whole Milk Powder.

Whole Milk Powder contains 96.5 per cent powder (solids) and 3.5 per cent water.

Cows Whole Milk contains approximately 12.5 per cent solids and 87.5 per cent water. This means that there is approximate 7,500 litres of milk in a tonne of powder.

Therefore a litre of milk is valued at: €3,854 / 7,500 = 51 cents per litre.

What is not factored into this price is the cost to process the product in the factory. I would caution against using Irish processing costs which are often quoted at between 5 – 7 cents per litre. The Irish average will reflect a lot of butter and cheese production, which consume a lot less energy that dairy powder production. Taking quoted Fonterra figures from their annual reports we see that their production costs are closer to 10 cents per litre, see table below

Fonterra Processing Costs

Year 2012 2011
Milk Processed 16.951bn L 14.427bn L
Processing Costs – NZ$ $2.689 $2.437
Processing Costs – € €1.666 €1.509
Approx. Processing Cost – L* 9.83 cents (Euro) 9.79 cents (Euro)

*Average across all milk and product portfolio. Source: Fonterra Annual Reports

Based on these figures the approximate price of milk after processing costs are deducted is about 41 cents per litre.

Tom O’Callaghan has 15 years of global experience in the agri-food sector, including dairy, meat, consumer package goods, bio-fuels and farming-owned co-operatives. He is currently focusing on emerging area of improving efficiency through agri-analytics and is advising on agri-food and farm efficiency expansion across Eastern Europe and former Soviet Union countries. He is also the former ceo of  ICOS.

 

Please be considerate of others when commenting. All comments posted are subject to our commenting policy. Comments violating this policy will be removed without notice.