Commodity Milk Value

Global prices for dairy commodities have a major influence on farmgate milk milk prices. See an explanation here of why the world market has such significant influence.

Commodity Milk Value (CMV) is an indicator that is based on a weighted basket of Oceania spot prices of major commodities – cheese, butter, SMP and WMP – converted to an Australian dollar-denominated value of milk. The CMV calculation uses the industry’s average annual product mix and conversion costs to estimate the corresponding milk value. There are two CMVs relevant – one based on domestic wholesale prices and another reflecting world (or Oceania) export prices.

While the CMV is an indicator that can be used in planning, the final milk price paid by each processor will be influenced by product and market mix. Typically there has been a premium paid above commodity returns in the final farmgate prices paid to farmers each season, with the CMV accounting for around 80-90% of average farmgate prices. This reflects returns generated from value-added ingredients, as well as retail and fresh products sold in less volatile domestic market channels.

This shows the Oceania CMV based on NZ export weekly spot values for WMP, SMP, butter and cheddar, converted to A$, less a deduction for manufacturing conversion costs. It is compared to the Australian Wholesale CMV for the same products, using the same method. The latter (orange line) is more relevant as the Australian market has effectively shifted to pricing on an “import parity” basis.

The Australian CMV provides a guide as to the “farmgate equivalent” milk value that can be generated from the manufacturing and sale of a basket of dairy commodity products. The Oceania CMV reflects the vulnerability to world prices that continues to remain relevant.

The weekly spot value of milk can be compared with the season-average CMV.

This chart shows the recent major causes of the changes in the weekly spot commodity milk value (from above).

There are a couple of options for different periods of comparison provided in the dropdown box.