Milk price to 2014 level, but margin spoils the party

But beyond the simple amounts, any further comparison quickly ends. Production costs have risen sharply for the average dairy farmer. The margin was definitely much better back then. Dairy farmers and many processors themselves desperately need the current high dairy market to keep up with the increased costs, let alone to put some meat on their bones again. Expensive feed and expensive energy have a major impact on costs.

Spot price calculations high
Anyone who looks at value calculations for milk will see daily prices of €46 to €48 per 100 kilos and perhaps even higher. That is also the level at which the spot market operates. The thought may then arise that the payout prices should also increase considerably. However, the prices mentioned do not reflect the entire dairy market. Factories also have long-term contracts that are set at a much lower price level. Factories always work with a mix of long and short term contracts for their products. They have to. It is necessary for the continuity and stability of the company. The effect of the higher dairy prices is now only taking effect much more gradually.

Grabbing a grip on the market
The big question for factories is also how long the current better market will last. The market has a fairly high degree of unpredictability. It is something that companies already struggled with during the corona period, and which has not really improved since then. It is a matter of grabbing a grip on the market. At the beginning of September, few dared to believe that the current dairy market would remain high for so long. The difficulty in getting a grip on developments in the dairy market can also be seen in the FrieslandCampina guaranteed price in recent months. After the guaranteed price barely rose for August and September, two very large steps upward followed, and not only that. The last two increases were also accompanied by significant corrections afterwards. Each time, adjustments were made afterwards by more than a third. The remainder of the increase is based on assumptions about the behavior of fellow companies in the coming period. However, developments in recent months still justify a significant milk price increase. It is remarkable in this context that competitor Arla is now implementing much more gradual price increases, while working with a comparable milk price formula as FrieslandCampina.

The RFC match itself
Meanwhile, the monthly guaranteed price says little about how FrieslandCampina itself is doing in the competition. The guaranteed price is calculated according to a fixed formula and not directly based on dairy prices. FrieslandCampina bases the guaranteed price on the current and expected payment prices of the competition. Whether the company itself can come up with its own earnings will be assessed afterwards. This usually works out well, but last year money had to be reclaimed.