Blend prices paid to Ontario's dairy farmers decline

Thursday, April 16, 2015

by SUSAN MANN

The blend price for Ontario dairy farmers and producers in other Eastern Canadian provinces is projected to decline by about $3.50 per hectolitre during this year due to a number of factors, delegates at the Dairy Farmers of Ontario policy conference were told last month.

For January 2015, the average within quota producer price before deductions in Ontario was $80.507 per hectolitre for milk of average provincial composition.

The factors include:

• The Class 1 (fluid milks) price decrease implemented Feb. 1 across the five Eastern Canadian provinces participating in the milk pooling agreement (Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island).
• The 1.8 per cent national industrial price decrease applied to the skim milk powder support price as of March 1.
• Declines in world dairy product prices that directly impact Canadian special class milk prices and the blend price farmers receive. The special milk classes are: Class 5a, cheese for further processing, 5b, non-cheese for further processing, 5c, confectionary products, and 5d, planned exports). Prices in Class 5 are based on world prices except for milk in the confectionary class, which is negotiated by a national dairy industry committee and confectionary manufacturers. International dairy product prices dropped substantially during the last half of 2014 due to decreased demand in China and increased production in the United States and New Zealand, according to a Dairy Farmers of Ontario report.
• The forecasted increase in the structural surplus by 20 million kilograms this year. The structural surplus is the portion of solids non-fat (SNF) that isn’t required by the domestic market. Farmers generate SNF, one of the two broad categories of components (the other is butterfat), as part of the supply management’s primary goal to meet the domestic butterfat demand. The SNF not required for the domestic market is sold mostly as skim milk powder or animal feed at lower returns for Canadian farmers. Processors increasingly using imported dairy ingredients, such as milk protein concentrate and milk protein isolates, is one of the factors contributing to the increase in the structural surplus.

Cross-border shopping for milk products declines

During the policy conference, delegates were also told current market trends point to continued growth in the coming months, particularly for butter, cream and cheese. The fluid milk market remained fairly stable for the last half of last year with the lower valued Canadian dollar taking a major bite out of cross-border shopping.

In British Columbia, cross-border shopping accounted for an eight per cent drop but “all lost sales have been recovered due to the lower valued Canadian dollar,” the Dairy Farmers report says.

Phil Cairns, Dairy Farmers senior policy adviser, says the organization doesn’t have numbers for the impact of cross-border shopping on Ontario dairy sales. “We don’t have a good read on that.”

Cairns says “we suspect we have some cross-border shopping” in Ontario but likely not as much as in B.C. where half the population is located on the Washington border.

Retail butter sales were up four per cent last year compared to 2013 largely due to the stigma of health concerns surrounding butter consumption melting away. Cairns says increased butter sales isn’t “unique to Canada” as other jurisdictions, such as the United States have increased butter sales too.

In the 1990s fat was considered to be bad for people’s health but “all the research has proven that wrong,” he says. “There’s a growing recognition that dairy fats aren’t as bad for you as was once felt.” BF