Dairy blend price increase takes effect in February

Thursday, December 17, 2015

by SUSAN MANN

Ontario dairy farmers are getting a 1.94 per cent increase in their blend price effective Feb. 1, 2016.

The $1.53 per hectolitre increase also applies to all other producers in the Eastern Canadian milk pool. The provinces in the pool are: Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island. In Ontario, the average gross blend price in September before deductions, the most recent figure available, was $77.28/hl.

The blend price increase takes into account both the 2.2 per cent fluid price increase and the Canadian Dairy Commission’s announcement on support prices. The fluid price increase and the changes in support prices — an increase for butter and a significant decrease for skim milk powder — are both effective Feb. 1, 2016.

Phil Cairns, Dairy Farmers of Ontario senior policy adviser, says the commission’s announcement on support prices this week “represents a change in policy. The skim milk powder support price reduction is only aimed at the small amount of solids-not-fat that we currently sell at Class 4a (butter and powders) prices.”

In the past the change in the skim milk powder support price “triggered a change in all industrial milk class prices,” he says. “This time that was not their (the commission’s) intent, and they indicated that in the information provided to provincial boards.”

Milk in Canada is classified and priced for processors based on what the milk is being used for. The classes range from Class 1a, fluid white and chocolate milk, flavoured milks and buttermilk, to Class 5d, planned exports. The industrial milk classes are yogurt, ice cream, cheese and butter.

“The only real significant impact of the support price announcement is the support price change in butter and that impact does get passed over all the industrial milk classes,” Cairns says. The price processors will pay for industrial milk is going up by 2.2 per cent because of the change in the support price for butter.

On Wednesday, the commission announced a five per cent increase in the butter support price to $7.78 per kilogram from $7.41/kg.

The support price for skim milk powder is going down by 30 per cent to $4.42/kg from $6.31/kg. The last time the skim milk powder support price was in the $4/kg range was 16 years ago, in the late 1990s and early 2000s.

Compared to previous price adjustments on skim milk powder, this a big decrease, says Chantal Paul, commission chief of communications and strategic planning.

This is the second year in a row the commission cut the skim milk powder support price. A much smaller, 17-cent per kilogram reduction in the skim milk powder support price took effect on March 1.

The support price for butter remained the same this year as it was in 2014 at $7.41/kg.

In the Dec. 16 announcement, there were no changes to carrying charges collected by the commission to pay for the storage of normal butter stocks or to the margin processors get for the butter and skim milk powder the commission buys.

Paul says the commission increased the butter support price but cut the skim milk powder price “because we wanted to acknowledge the fact that the cost of production (for dairy farmers) has increased. The commissioners estimated that dairy farmers deserved an overall increase in their revenue and that increase was applied to butter because the butter market is pretty strong right now so it can take an increase.”

The skim milk powder “market is definitely a lot weaker than the butter market and we’re hoping to generate more demand for skim milk powder with the price decrease on it,” she says.

The commission says in its Dec. 16 press release there has been a 3.11 per cent increase in the cost of producing milk this year.

The impact of the commission’s support price adjustments at the retail level “will be influenced by many factors, such as manufacturing, transportation, distribution and packaging costs throughout the supply chain,” the release says.

The commission uses support prices when buying and selling butter and skim milk powder under its domestic seasonality programs. The programs are used to balance the seasonal changes in demand on the domestic market.

Paul says the support prices are also used by the industry “as references to determine the price of the milk at the farm level. There’s a whole mechanism that allows those support prices to trickle down to the farm level.”

Created in 1966, the commission is a Crown corporation and is a key facilitator within the Canadian dairy sector. BF