World conditions affect milk prices for Ontario's dairy producers

Thursday, October 15, 2015

by SUSAN MANN

A drop in Chinese milk imports coupled with the Russian embargo on American and European goods is contributing to a decline in Ontario dairy farmers’ incomes.

Those two events in other regions of the world have led to the substantial reduction in world milk prices this year, Dairy Farmers of Ontario says in a document released at its fall regional meetings held across Ontario the first week of October. World dairy prices directly impact Canadian special class milk prices and ultimately the blend price Ontario dairy farmers get paid for their milk.

Special classes account for about 11 per cent of national butterfat production and 20 per cent of national solids-non-fat production, the document says.

Raw milk sold to processors in Canada is classified and priced according to its end use. The classes range from fluid milks (Class 1) to planned exports (Class 5d). The price processors pay for milk in the special classes (Classes 5a to 5d) is based on world prices except for the confectionary class. A national dairy industry committee and confectionary manufacturers negotiate prices in that class.

As part of national and regional agreements, Ontario milk revenues are pooled with the revenues of other provinces before being paid to Ontario farmers, according to an Ontario agriculture ministry factsheet. Each farmer gets a blended price that reflects fluid and industrial milk sales.

The drop in world prices was very evident in Ontario this spring and summer when the monthly blend price for Ontario dairy farmers declined by $3 to $8 a hectolitre compared to the same period a year ago, the Dairy Farmers document says. Only about 82 cents per hectolitre of the price drop is due to the domestic price decreases the dairy industry implemented in the spring.

“The balance is attributed to lower world prices and to a lesser extent the increasing volumes of skim milk that are being marketed into animal feed or being disposed of,” the Dairy Farmers document says.

For the 12 months ending in July, the producer within quota blend price before deductions was $79.30 a hectolitre for milk at average Ontario composition. That’s a 2.8 per cent decrease in the price compared to the previous dairy year.

Dairy Famers chair Ralph Dietrich says the world price drop is out of Ontario farmers’ and the marketing board’s control.

He notes it’s difficult for farmers to cope with the lower blend price. “Every farmer notices it.”

The blend price did rebound slightly in September, he adds.

Phil Cairns, Dairy Farmers senior policy adviser, says there’s some good news in the blend price story. “The blend price decline would be worse if our dollar was still on par with the U.S. dollar,” he notes. “If you’re selling in U.S. dollars, we add at least 30 per cent to it to get it to the Canadian dollar, and that has certainly taken the really deep sting out.”  

As for what’s on the horizon, Cairns predicts the low world dairy prices to prevail for another year.

He notes Dairy Farmers officials have been alerting farmers about the situation since the spring. “We’ve been telling farmers that 20 per cent of their skim milk is marketed at world prices.” If world prices decline, farmers’ “returns on that 20 per cent will come down accordingly.” BF