What is the story with Dairy Farmers??

[Big Mick]

This has been all over the news and social media for a few days now.

I can't really work out what the story is and how buying expensive milk helps farmers when Coles/Woolies etc are making the profits on the milk.

Can someone explain what the story is, as any articles I have read and news stories make no sense.

May be Bazza has an insight into this and can explain the situation since he is in the industry from what I understand.

 

[Darkoz]

What don't you understand Micky?

 

[Bazza20]

It's sort of complicated they way the are doing it but it is effectively retrospective pay cuts.

Basically one milk factory fucked up their forecasts and decided they didn't make enough money to keep shareholders happy so far this financial year. So they have decided they payed too much for milk the last 10 months and farmers now owe them money back. This was on an already shitty price. They kept it quiet up until the day it was announced. Even said there could still be price increases.

The 2nd factory just followed because they could get some cheap milk. I think they just recently announced a 380 million profit.

 

[Big Mick]

What don't you understand Micky?

Because it makes no sense, people are buying expensive milk to 'help' farmers, and living the country I am all for helping farmers, but can't see how making the supermarkets more profit helps farmers.

 

[Big Mick]

It's sort of complicated they way the are doing it but it is effectively retrospective pay cuts. .

Ok this confused me, I read this when I looked into it a bit, so this is correct??

Why are they able to do this??

Did the farmers majorly fuck up in their contract??

Basically one milk factory fucked up their forecasts and decided they didn't make enough money to keep shareholders happy so far this financial year. So they have decided they payed too much for milk the last 10 months and farmers now owe them money back. This was on an already shitty price. They kept it quiet up until the day it was announced. Even said there could still be price increases. .

Why can't the farmers set the price for milk that is reasonable?? Ie someone has to provide the milk, it's not like the supermarkets can make their own milk, and I could not imagine it would be economically and logistically viable to import it.

I think they just recently announced a 380 million profit.

So they are doing OK then.

My confusion lies in why would they want to fuck over farmers?? As without farmers they have no milk to sell and no more business. At the end of the day most people could not give a flying fuck if milk costs a few cents more, but I am guessing the supermarkets are making the $$.

Not sure what exactly you do, but has this impacted on you in any way (not expecting to learn your personal finances just talking in general)??

What are YOUR thoughts about this??

Will buying 'expensive' milk actually help farmers or is it just social media BS??

 

[Bazza20]

Because it makes no sense, people are buying expensive milk to 'help' farmers, and living the country I am all for helping farmers, but can't see how making the supermarkets more profit helps farmers.

It's because with the dollar milk the two big supermarkets have the major market share in the fresh milk market. With their buying power they are able to screw the processors right down on price, which gets passed onto farmers, and force smaller players and competition out of the market enabling them to even further screw the prices they pay down.

How much effect not buying dollar milk will have, I don't know, probably not much. The bigger problem for the low milk price is the currently low world market for all milk products.

 

[Bazza20]

Ok this confused me, I read this when I looked into it a bit, so this is correct??

Why are they able to do this??

Did the farmers majorly fuck up in their contract??



Why can't the farmers set the price for milk that is reasonable?? Ie someone has to provide the milk, it's not like the supermarkets can make their own milk, and I could not imagine it would be economically and logistically viable to import it.



So they are doing OK then.

My confusion lies in why would they want to fuck over farmers?? As without farmers they have no milk to sell and no more business. At the end of the day most people could not give a flying fuck if milk costs a few cents more, but I am guessing the supermarkets are making the $$.

Not sure what exactly you do, but has this impacted on you in any way (not expecting to learn your personal finances just talking in general)??

What are YOUR thoughts about this??

Will buying 'expensive' milk actually help farmers or is it just social media BS??

We don't set any prices. We take the price the factories are willing to pay. There is not much variation and they all try their best to make their pricing structures complicated to make them very difficult to compare.

We don't just get paid a price per liter. We get paid for protein and fat content then they charge us a volume fee for picking up the liters. Then you get charged on various quality pentameters. The prices then vary from month to month.

There is not really any power over prices as a farmer, you can't store it and you could say you are not happy with the price and they will find someone else down the road who is.

 

[Big Mick]

We don't set any prices. We take the price the factories are willing to pay. There is not much variation and they all try their best to make their pricing structures complicated to make them very difficult to compare.

We don't just get paid a price per liter. We get paid for protein and fat content then they charge us a volume fee for picking up the liters. Then you get charged on various quality pentameters. The prices then vary from month to month.

There is not really any power over prices as a farmer, you can't store it and you could say you are not happy with the price and they will find someone else down the road who is.

Ok, I read all this and coming from private industry I do not get this, hence me starting this thread.

If I make a product I set the price for the product not the buyer.

If all farmers stuck together and said we want X$ per unit of milk (within reason of course) what choice do the buyers have?? They can't just get milk from down the road if down the road charges the same??

I know this is simplified but may be a Dairy Farmers Union of sorts is needed??

I honestly think someone as a whole fucked up in a big way if the buyer dictates price.

 

[Repacked]

Ok, I read all this and coming from private industry I do not get this, hence me starting this thread.

If I make a product I set the price for the product not the buyer.

If all farmers stuck together and said we want X$ per unit of milk (within reason of course) what choice do the buyers have?? They can't just get milk from down the road if down the road charges the same??

I know this is simplified but may be a Dairy Farmers Union of sorts is needed??

I honestly think someone as a whole fucked up in a big way if the buyer dictates price.

I know what you mean, but commodities don't necessarily work that way.

 

[Bazza20]

Ok, I read all this and coming from private industry I do not get this, hence me starting this thread.

If I make a product I set the price for the product not the buyer.

If all farmers stuck together and said we want X$ per unit of milk (within reason of course) what choice do the buyers have?? They can't just get milk from down the road if down the road charges the same??

I know this is simplified but may be a Dairy Farmers Union of sorts is needed??

I honestly think someone as a whole fucked up in a big way if the buyer dictates price.

It's the same with pretty much all agriculture world wide. The processors set the price. The processor says we will pay this for milk, it's up to you if you want to supply that.

The dairy down the road will be happy to have some money coming in, better than nothing. With dairy especially It's not a product you can hold out on.

There is a union of sorts. We waste money paying levies for some shit like that.

The main problem at the moment is the world market sets the price, it's very low at the moment and china fucked us over it looks like which added onto that.

 

[Johnnie Walker]

this is why god invented futures. except there is no milk futures market in AUS, and think it is pretty small in the states.

Good for other ag's though.

 

[Johnnie Walker]

Ok, I read all this and coming from private industry I do not get this, hence me starting this thread.

If I make a product I set the price for the product not the buyer.

If all farmers stuck together and said we want X$ per unit of milk (within reason of course) what choice do the buyers have?? They can't just get milk from down the road if down the road charges the same??

I know this is simplified but may be a Dairy Farmers Union of sorts is needed??

I honestly think someone as a whole fucked up in a big way if the buyer dictates price.

because if people don't want to pay that, then they wont. supply and demand. if supply is greater than demand, the buyer sets the price. If demand is higher than supply, seller sets the price..pretty basic

 

[Bazza20]

this is why god invented futures. except there is no milk futures market in AUS, and think it is pretty small in the states.

Good for other ag's though.

I know some guys in the US using futures to protect against these downturns. They made some money now but lost money on it when we had the good prices a couple years ago.

If I could make money that easy off futures why the fuck would I bother dairy farming.

My theory is I'll stick with what I know, make money dairying while its good and be ready for the next downturn which as always around the corner.

 

[Johnnie Walker]

because if you know your market and industry well enough you can hedge your risk... if you think in 6 months prices of milk will be down you would sell futures to deliver in 6 months and lock in current price.

and im sure in the contracts that farmers sign there will be something similar to this, but in favor of the processors.

and on another note, if you have a good operation and know you can withstand the downturn it is good for you, as all really low prices will do is knock out over capacity and cause prices to rise again as supply drops off.

 

[bull]

Mick, it is the same basic process in all of the agriculture commodities. The retailers were allowed to get control of too much of the market so the entire pricing structure gets turned on its head.

They decide how much they can sell for, then they subtract costs and their desired profit to get an input price. They tell the wholesaler what they will pay for milk and that sets the wholesalers revenue. The wholesaler subtracts costs and their desired profit and tells the producer how much they will be paying. The producer subtracts his costs and usually doesn't get a profit. There are not a lot of options because the product is highly perishable and has to be moved to make way for the next lot of production. You can't just stockpile milk until Woolies wake up to themselves.

The retailers have maneuvered themselves into a position of market power and are shafting both ends of the supply chain.


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[Bazza20]

because if you know your market and industry well enough you can hedge your risk... if you think in 6 months prices of milk will be down you would sell futures to deliver in 6 months and lock in current price.

Yeah real nice an easy in theory. The head of one of these milk factories on 3 mil a year didn't pick this and that's his job. So how the fuck am I supposed to.

 

[Johnnie Walker]

Yeah real nice an easy in theory. The head of one of these milk factories on 3 mil a year didn't pick this and that's his job. So how the fuck am I supposed to.

i thought you were really clever?

 

[Bazza20]

i thought you were really clever?

I'm clever enough to know what I know.

I know that guys paid 3 mil can't pick markets when that's what the specialize in and neither can I.

I also know if I could pick the markets I wouldn't bother dairy farming.

 

[Johnnie Walker]

if you know your market, which i hope you do seeing its been your life, its easier than you think,

so what if some cock who gets paid 3mil a year didnt see it coming, doesn't mean no one did. and fuck its not that hard to see coming, ive mentioned countless times on here over the last few years about the effects of a declning china and the aussie dollar.

 

[Repacked]

As Johnnie said Baz it allows you to hedge your risk, but also allows you to forward plan because you know ahead of time how much you will be getting paid, as opposed to dramatic peaks and troughs. For some commodities producers and businesses that alone may be worth foregoing a possible premium or saving at some future point.