Cream value the trigger for milk price changes?

Published 4 January 18

For liquid milk processors, unsurprisingly, it appears that changes in the value of cream is the key trigger for adjusting the price paid to their farmers for milk.  However, the time-lag for market prices to reflect in farm prices is perhaps longer than some would expect.

Price changes for non-aligned liquid milk contracts*, track very closely to the 3-month moving average of cream income to a liquid processor, although with a 2-3 month lag.

The 3-month average return from bulk cream only started to drop in November, after cream prices started dropping from September.  It is not surprising therefore that liquid milk processors announced reductions in milk prices to take effect from January 2018.

04.01.18 Cream income article

Knowing the relationship between bulk cream markets and milk prices can help farmers better understand what is affecting the milk price they receive. As with any analysis using averages, farmers are advised to apply the same logic to the price they receive from their own milk buyer and assess how their milk prices have tracked cream returns. In particular, they should look to see whether the lag in a rising market is the same as in a falling market.