Dairy volatility needs effective management
With the imminent removal of milk quotas in 2015, and the continued dairy volatility being experienced by the European Dairy industry, the use of effective risk-management and hedging tools has never been more important, according to a recent risk-management seminar in Amsterdam organised by FC Stone.
Eoin Kelly, Business Analyst, Bord Bia-Irish Food Board says that the seminar highlighted the fact that since 2004, the administrative minimum prices for butter and skimmed milk powder fell by 25% and 15%, respectively, while since 2006, world market prices of butter and SMP increased due to growing world market demand. “There has been an increased convergence of world and European milk market prices. Butter and SMP intervention prices no longer determine European market prices with world market prices levels now the new minimum prices for the European milk market.”
He said the seminar also highlighted the fact that milk price volatility is set to persist. “This is due to an increase in the EU share of global dairy markets, coupled with new international climate and weather risks. There is also the increased risk due to exchange rate volatility and new global risks.”
Prominent industry hedgers, economists and consultants from FCStone discussed strategies and available dairy risk-management tools in an open and interactive forum.
Focused working group sessions, designed to work through the strategies available in utilising these tools to better manage exposures to the European and international dairy markets, also took place.
The one-day seminar was specifically designed to enable dairy processors to understand the ways in which they can utilise futures markets to manage volatility for their own operations, as well as providing solutions for their farmer suppliers and customers, he said.