A leading western Victorian dairy farmer has questioned why processors are failing to pass on increases in Global Dairy Trade prices to farmers.
The GDT is the leading global auction and marketplace for trading large volume dairy ingredients.
It also provides a price reference for dairy products.
Alanvale farm’s Garry Morrison told this year’s Dairy Australia Situation and Outlook breakfast, in Melbourne, the GDT had gone up by nearly a third, in the last few years, to $4333 a tonne.
A Fonterra supplier, Mr Morrison asked the company’s managing director Rene Dedoncker why the processor’s estimated closing price, released a month ago, was still in the $5.60-$6.20 range.
“All that does is signal to the other processors,” Mr Morrison said.
“How the hell can you come out and give that potential closing price, when for the last six months the average GDT has been the highest it’s been in six years?
He said processors were still asking for farmers to trust them, yet better prices were not being passed on to suppliers.
Mr Morrison said he was milking more than 3000 cows.
“I don’t think that when the prices are up, they are flowing through to the farmers, as they should.
Lachie Sutherland, Larpent, who wasn’t at the breakfast, said he also followed the GDT.
Mr Sutherland said he was able to convert GDT prices into milk solids prices.
“The GDT is a very good indicator, of supply and demand, over a period of time,” Mr Sutherland said.
“The last four events, for the past two months, have indicated a milk price above six dollars (a kg/MS), so obviously companies are being very conservative, which is very frustrating for us.”
“The good thing is that it holds processors to account.
He expressed frustration there was no index for milk prices, similar to the Eastern Young Cattle Indicator, or price indicators for wool and grains.
“We have ones around wool and wheat, why can’t we have one around milk?” he said.
Mr Dedoncker told the breakfast processors also dealt with uncertainty.
“We have a lot of moving parts, in business, we need to manage as well,” Mr Dedoncker said.
Fonterra had made some “regrettable” moves, in recent years, and wanted to avoid doing so again.
“Do we overthink some of this? Yes we do.
“Do we wait until we have got more certainty? Yes we do.”
He said Fonterra had only just signed off on fixed contracts for the Japanese market.
“We have waited, as long as we could, to clarify and get confidence, around some of those positions.
“I know you don’t like that, but that’s a reality for us
“We have made an active choice, so it’s been intentional.”
Mr Dedoncker said he took advice from his commodity risk and trade and sales teams.
“I wouldn’t have changed that,” Mr Dedoncker said.
He said the company had sought to set up an “ecosystem”, which took risk out of the equation.
”We are trying to give ourselves more resilience and more opportunity, so that when we do get tough times, we don’t stand up and say ‘that’s a surprise, what are we doing to do?”
Gippsland dairy farmer, Chris Griffin, a breakfast panellist, called for more clarity around milk prices.
He applauded the United Dairyfarmers of Victoria push to simplify prices, saying it made a lot of sense.
Mr Griffin said the loss of Murray Goulburn had caused greater uncertainty.
“That was the price setter, or the benchmark, for all companies for farmers to understand they were getting the price they should be getting,” Mr Griffin said.
“They had a farmer board that was overseeing that,” Mr Griffin said.
‘We haven’t got that now, in Victoria, so how do we, as farmers, know we are getting a true price for our product?
“We don’t know now because we haven’t got the oversight, we had previously.”
He said it was very difficult for farmers to understand what they were being paid, because of incentives offered by processors.
“This weighted average, to me, is way off the floorplan, let’s get the median price,” Mr Griffin said.
“It’s pretty transparent, but for that to happen, everyone has to do it.
‘That’s what’s clouded some of the farmers thinking and profitability, because they don’t understand what their price structure is.
‘It’s too complex.”
