Fixation on ‘this month’s milk price’ may have to change – ICOS

The dairy industry may need to change its fixation on this month’s milk price, according to the Irish Co-operative Society (ICOS).

In a recent update, ICOS said it’s time to sit down and devise a fresh approach to reporting milk prices; maybe on the basis of a rolling average, maybe including the full benefit a farmer gets from his co-op.

ICOS claims this might create the space for the development of more stable milk pricing tools.

It stresses we need to generate a structure that can help farmers to cope with anticipated price drops.

It says the dairy volatility cycle is reasonably well established at this stage, and experience suggests that every three years or so we have a period of low prices, usually lasting a full season. The Budget decision to extend the income averaging period to five years is helpful, but it’s not enough on its own. The fact that volatility is as damaging for customers as it is for producers, may work in our favour.

There is increased interest from customers in fixed price contracts, but it’s not easy to agree a fair price, it says.

Dairy Futures

ICOS has also slammed recent media coverage, suggesting that Irish co-ops had the opportunity to lock in milk prices at 39c/L, as wildly inaccurate.

It says the fact is that there was interest by some end users in locking in raw material prices on the Eurex dairy Futures market.

However, ICOS says the volume involved was less than 2% of Irish production, and the mechanism, cash settled contracts on the basis of French/German/Dutch commodity prices, would have introduced an additional element of risk.

According to ICOS it is hoped, that a futures market, geared to hedging Irish milk prices will be operational over the next couple of years, but for now it’s still in development.

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