Boerenbusiness Investigation
Young dairy farmer likes to see a fixed milk price
More than half of the Dutch dairy farms are interested in working with a fixed milk price for part of the milk production. Especially young dairy farmers and dairy farms with an annual production of more than 1,5 million kilos are interested in fixing the milk price.
This is the result of a survey conducted Boerenbusiness has organized among more than 500 dairy farmers to gauge the need for a fixed milk price. In arable farming, for example, fixing the price for French fries during a growing season is well established, but in dairy farming such accessible price mechanisms are not yet widely accessible and known.
The exception to the rule is the German dairy cooperative DMK, which announced last fall introduce a fixed milk price. Other cooperatives have so far held off the boat for a fixed milk price, pointing to the dampening effect that monthly milk prices have on price fluctuations in the global dairy market. Hedging on the futures market allows a dairy farmer to fix the milk price for the longer term (6 months to a year), but few dairy farmers use this instrument. DCA-Markets reported in late March that with smart hedging a fixed milk price above €40 per 100 kilos was possible.
Young dairy farmer chooses
However, the poll shows that a large group of dairy farmers can certainly be rendered a service with a fixed milk price. For example, 71% of dairy farmers between the ages of 30 and 40 are interested in fixing the milk price in advance. On average, more than half of the farmers (54%) find it interesting.
Capture a longer period
A large part of the dairy farms want to fix the milk price immediately for a longer period. Just under 75% of the dairy farmers in the poll are in favor of a fixed milk price for 1 or 2 years. More than 48% opt for 1 year, while more than 26% find a fixed price for 2 years an attractive idea. This is of course not about the entire milk flow of a company.
In the cultivation of French fries potatoes, for example, it is common practice to fix part of the harvest at a fixed price, so that an arable farmer can cover his cost price in this way. He can then determine the height of the cultivation yield himself with the free part of the potatoes. The poll shows that almost half (48,5%) of the dairy farms want to fix half of the milk production for a fixed milk price. Just under 27% think about capturing more than half of the production for the same price, if given the opportunity.
Risk management weighs more with more cows
The larger the company, the greater the need for financial security. At least, so it seems, judging by the poll results. Dairy farms with an annual production of more than 1,5 million kilos are considerably more interested in a fixed milk price than farms of a smaller size. No less than 80% of them find a fixed milk price attractive.
In an explanation, the dairy farmers refer to the feed costs. If you fix the feed costs on the one hand and fix the milk price on the other, you reduce the price risks and you can aim for a solid return. This also offers advantages for the financing of the company. More than half of the companies with an annual production of half a million to 1,5 million kilos still want to seriously consider entering into a fixed milk price.
Interest lukewarm at organic
The interest in a fixed milk price, or covering part of the milk production at a fixed price, is not sector-wide. For example, it appears that dairies that produce organically or under a quality mark such as PlanetProof are much less interested in a fixed price. Of the organic companies, 76,5% do not feel like it. At PlanetProof dairy farms this is over 65%. One reason for this may be that milk prices, as predominantly organic, move in a more stable pattern than those of conventional milk. Companies that produce Vlog milk are also very interested in fixed milk prices.
Free market is better
Of the dairy farmers who indicate that they are not interested in fixing the milk price for (part of) the milk production, the majority indicate that this does not fit with the cooperative idea of the cooperative to which they now supply. 39% of them say they think they are better off with the free market. A third of this group say they have little faith in the system of fixed milk prices and 14% are afraid of missing out on peaks in the market if they have fixed the price in advance. 7% also think that with a fixed milk price you run more risk.
* This article and the research were made possible thanks to Niels van Vilsteren.
Eric the Thrush
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