Is there a future for dairy futures?

Published 15 December 15

Recognising that a lack of price stability is harmful for all players in the dairy supply chain, a workshop looking at how futures can help was recently held by Eucolait. Within the programme, Ornua (formerly the Irish Dairy Board) provided an overview on why managing price volatility was important for the dairy industry. 

Ornua’s high level of debt, due to recent large investments, makes certainty over revenue very important. However, this is difficult to achieve due to volatility in prices and highly seasonal milk production. Ornua has to manage a mismatch between its milk supply and sales. It also has a heavy reliance on global commodity markets, increasing its exposure to market cycles.

The cooperative uses six approaches to help it manage price volatility, as listed below:

  • Keeping costs of production down (throughout the supply chain), which provides them with the ability to survive the low price part of the cycle
  • Diversifying its product range, market sector and geographical markets
  • Brand development to support margins
  • Developing strategic relationships with customers to help lock in future business
  • Providing guaranteed price contracts by matching suppliers to customers
  • Hedging to improve price stability.

While recognising that using futures is an important part of its overall strategy, they are only one tool at its disposal. Ornua expects its use of dairy futures will remain limited in the short term until the practical and technical barriers to more widespread use are overcome.