As farmers we always took the advice from some farmers unions to take the lead in setting milk prices. But what is the reality? It is clear that the market has a big influence on the level of milk prices.
We are happy that at this moment milk markets are demand driven and less supply driven as was the case some years ago. Also the growing demand caused by population growth and better living standards especially for middle classes are pushing prices up.
Also don’t forget the influences of currency changes worldwide. Due to the weaker Russian Rubble it is less attractive to export from the EU to Russia at this moment. Also the New Zealand Dollar is hurting export possibilities for NZ dairy products. USA has the advantage of the weaker US dollar! An IFCN study from the past tells us that currency influences are maybe one of the most important influencers on farm price setting.
Other issues are politics and political restrictions. At the moment we have to deal with the MH17 disaster and Russia’s association with that. I am justifying measures taken by the UN, USA and EU, but for the agricultural sector in the Ukraine and EU there are major consequences. For example nearly all entrances for UA dairies and their allies are blocked in to Russia. The same is happening with New Zealand dairies to China. What influences does the returning cold war between East and West have on milk prices? At least not a positive one! Official governments are speaking about shortcomings on issues, such as food health and food safety and blocking produce completely as a matter of principle.
And last but not least what influence does it have on our emotions? At the moment traders are putting pressure on the level of milk prices by telling us that prices are going down. This is because of the sufficient stocks China has built up. And this significantly hurts the results of the Global Dairy Trade. But, what we are not told about is the current peak in milk production, the restrictions for Fonterra in exporting baby food to China and the complaints by retailers on prices being too high.
For me, it is clear that there are different factors influencing farm gate prices, but my own influence on this is minimal. What I can do is follow all publications and news in the daily newspapers. And that tells me I am happy with today’s milk prices and I don’t foresee a significant decrease in milk prices. Only an increase in volatility, but the average milk prices in 2014 and 2015 will remain almost equal.