Milk price cuts coming

Monday, January 19, 2015

by SUSAN MANN

Ontario dairy farmers are facing a one per cent decrease in the gross blend price they get for their milk this year due to reductions in fluid and industrial milk pricing formulas.

Phil Cairns, Dairy Farmers of Ontario senior policy adviser, says the first decrease in the blend price is slated to go into effect Feb. 1 when a reduction in the fluid milk price becomes effective. The second decrease will go into effect March 1 due to the Jan. 15 announcement by the Canadian Dairy Commission to reduce the support price for skim milk powder.

The decrease in the fluid price will reduce the farmer blend price for producers in the P5, which includes Ontario, Quebec, Nova Scotia, Prince Edward Island and New Brunswick, by about 15 cents a hectolitre, Cairns says. The average blend price, before deductions, is currently at $82.34 per hectolitre for milk at provincial average composition.

The Commission announcement to reduce the skim milk powder support price by 1.8 per cent will result in a further 68-cent per hectolitre decrease to the blend price. Cairns says the total impact on the blend price is a decrease of 83 cents per hectolitre or about one per cent.

This is the first time in 22 years the Commission has announced a price decrease in support prices. Effective March 1, the support price for skim milk powder drops to $6.3109 per kilogramfrom $6.4754 per kilogram, the Commission’s Jan. 15 release says. The butter support price stays the same at $7.4046 per kilogram. Also unchanged are the margin received by processors for butter and skim milk powder purchased by the Commission and the carrying charges collected by the Commission to pay for storage of normal butter stock.

Support prices are the prices at which the Commission buys and sells butter and skim milk powder to balance seasonal changes in domestic market demand, the Commission’s release says. They are also used as references by provincial marketing boards to price industrial milk used to make products such as yogurt, cheese and skim milk powder.

Cairns says on the fluid side, the last time milk prices were decreased was in February 2012 after rapidly rising costs prompted a 3.2 per cent preliminary increase being implemented in August 2011. That decrease was 0.7 per cent. A later review of the preliminary increase showed  “we had overestimated” the price increase needed so there was a partial rollback, he explains, adding producers still got a 2.5 per cent increase at that time.

Randy Williamson, Commission chair, says in the release the March 1 support price reduction is due to a decrease in the cost of producing milk in Canada during the past year. Cost decreases were in feed, milk transportation, fuel and interest paid.

We are optimistic that this price reduction will help grow the demand for dairy products,” he says.

Chantal Paul, Commission chief of communications and strategic planning, says 1993 was the last time the Commission decreased support prices and that decrease applied only to butter.

Paul says she didn’t work for the Commission then “but I’m guessing that it was because at that time the demand for butterfat was going down. It was an effort to control the price of butter so the demand wouldn’t decrease that quickly.” That butter support price decrease was accompanied by an increase in the skim milk powder support price.

This time, the situation is reversed. The market for butterfat is good now. “People seem to be going back to butter,” she says.

But the market demand for cheese and yogurt has softened. Paul says the demand for these products was growing quickly a year ago but now they have “much lesser growth.”

Those two products contain protein and if the support price decrease is applied by all the provinces “that should reduce the component price of protein on the market and give a bit of boost in the market for cheese and solids-non-fat.” Solids-non-fat are the lactose, caseins, whey proteins and minerals in milk.

The support price decrease might also help the Commission export more skim milk powder during the next year. Due to the World Trade Organization agreement, “we have limits on what we can export and the lower the domestic price on skim milk powder, the more we can export,” she says.

One group that’s happy with the skim milk powder support price reduction is Restaurants Canada, the association representing restaurant owners. Joyce Reynolds, executive vice president government affairs, says “we certainly welcome the Commission’s decision. We’re pleased to see a roll back in prices for the first time as long as memory serves.”

The Commission’s decision means dairy products, like cheese, will be more affordable for restaurants if processors pass along the price savings, “which we are strongly encouraging them to do,” she says. It will mean restaurant owners can “put more cheese on pizzas and include more dairy products in their menu items.”

Restaurant owners will be watching to see if the price savings are passed along to them, she adds. BF