Semex conference: Efficiency key in volatile dairy market

Managing volatility in milk markets will be central to the success and viability of any dairy farm over the next 10 years, delegates heard at last week’s Semex Dairy Conference, Glasgow.

And if the predictions of John Allen, Kite Consulting, are anything to go by, that “milk could potentially become more volatile than any other soft commodity in the future”, then change will be needed.

He said because milk markets were becoming more exposed, farmers could expect to see troughs and peaks in milk price about every three years, with small changes in stock levels having a huge influence on price. “Milk prices are dictated by supply and demand with a removal of 0.3% of stock potentially resulting in a doubling of milk price.”

But although he predicted milk markets to stabilise in short to medium term with stock levels dwindling, he did urge the importance of managing volatility.

He suggested retailer initiatives, contracts and efficiency at farm level would be key areas to look at in order to manage volatility, which is something NFU’s Hayley Campbell-Gibbons also agreed with.

Ms Campbell-Gibbons urged farmers to consider milk contracts carefully.

“Contracts offer producers a real opportunity to hedge at least a proportion of production and this is one of the reasons the EU Commission has identified contracts as a fundamental factor in insuring fairness and is a reason why member states will also see that contracts will have a more important role,” she said.

But what farmers need to realise is that to survive they will have to become more business-minded, said Kite’s Edward Lott. “The new volatile market place will require farmers to take a professional and business like approach. There is more than a six pence a litre difference between the top 25% and bottom 25% of producers and it’s not the system itself that dictates how successful a farm is, it’s management of the system which is key.”