Milk price: Do you know your ABC?
Most Irish co-ops pay for milk on an A plus B minus C basis, where A is the price paid per kilogram of protein, B is the price paid per kilogram of fat and C is a processing cost deduction.
It is important that all dairy farmers understand how the payment system works and know what their processor is paying them per kilogram of fat and protein.
It is also good to know when, or if, your processor offers bonuses and when you are at risk of a penalty.
Table one (seen below) is an example of how milk price – on a cent per litre (c/L) basis – is calculated based on the standard fat and protein percentages that the vast majority of co-ops use to calculate base price.
Table two (seen below) details the calculation of milk price for two farmers who have supplied 50,000L of milk each – in a month – with different constituent levels.
Farmer A supplied 103kg additional protein and 253kg additional fat in the same volume of milk. This was worth €507 and €845 respectively in additional milk revenue.
Protein is the most valuable constituent and the ratio of protein to fat value is 1.64:1 in the table below. The ratio of protein to fat values differ between milk processors and will depend on your milk processor’s product mix.
It is worth remembering that the first defence against the risk of low milk price is to ensure that you are maximising your milk price.
Farmer A had a 0.2% higher protein and 0.49% higher fat leading to a 3c/L higher milk price than farmer B – generating an additional €1,500 in extra revenue for the farm, in that month, over farmer B.
Dairy farmers have a significant ability to increase their milk receipts by increasing milk solids’ concentration (more kilograms in the same volume), producing milk with an optimum supply profile (earlier and more compact calving pattern) and improving milk quality (lower somatic cell count (SCC) levels).
Genetics, replacement rate and management will drive improvements in the first three items while your milking routine will have a big impact on the final item listed.