Milk prices reported in the media can be confusing and misleading information for farmers, the dairy industry and the public. The measurement and reporting basis varies widely within many countries, let alone when currency is taken into account.
Usually, the price of milk is reported as value per volume or weight of milk. For example: cents per liter (cpl); dollars per quintal ($/cwt); or euro for 100 kilograms. The main problem with these pricing bases is that the actual payments for milk are typically for the fat, protein and other solid components – very few dairy processors pay for water! You need to know the composition of the milk and this composition changes from one farm to another and from one country to another. There is no standard composition when it comes to comparing local and international prices. Here are some of the factors to consider when making comparisons.
Badge: This is an obvious problem, but a choice should be considered between: the current daily rate; the annual average conversion rate; the weighted average conversion rate. In the latter case, the currency exchange rate should be weighted by the timing of payments to farmers.
Composition of fats and proteins:It is normal for farmers to be paid based on the fat and protein composition of the milk. This can have a dramatic effect on the price of milk when expressed in cpl. So, for example, the price of cpl milk for a high-dairy Jersey cow can be more than 50% higher than for a Fresian/Holstein cow.
The typical composition of cow’s milk in the world’s leading dairy exporters is: Europe: 4.2% fat, 3.4% protein; US 3.7% fat, 3.0% protein; New Zealand: 4.7% fat, 3.7% protein; Australian 4.1% fat, 3.3% protein.
To add to the confusion, USDA milk prices reported in $/cwt are based on 3.5% fat composition and Eurostat milk prices are based on 3.7% fat.
There is no standard for the price of milk in Australia and New Zealand and the safest measure of the local price is when it is expressed as $/kg milk solids ($/kg DM). Milk solids are defined as the sum of the measurements of fat and protein in the milk.
Measurement of mass or volume: In addition to the fat and protein composition of the milk, you also need to know if the test measurement is expressed as mass/mass (eg, kg/kg) or mass/volume (eg, kg/liter). ). The typical density of milk is close to 1.03 grams/liter, so an error here can affect the calculation of the price of milk by 3%.
True or crude protein: Crude protein is an estimate of the protein composition of milk based on nitrogen measurements (typically by Kjeldahl nitrogen test). The protein content of milk is calculated from an international standard factor of nitrogen x 6.38.
True protein is an estimate of actual milk protein based on a calibrated near-infrared measurement. The difference between crude and true protein amounts to what is called “non-protein nitrogen” (NPN).
It is estimated that true protein measurement will give a result 0.1 – 0.2% lower than crude protein. This can affect the calculation of the price of milk by up to 5%.
In the US and Australia, the protein content of milk is generally reported as true protein, while in the EU and New Zealand, crude protein is more often used.
Calculation example: This is an example of how you can convert a reported milk price from one country to another taking the above factors into account:
A US farmer is paid $11.50/cwt for milk with a composition of 3.7% fat and 3.0% true protein on a mass/mass basis.
A New Zealand farmer wants to know what this equates to in $NZ/kg DM with milk solids being equal to fat + crude protein. Assuming an exchange rate of NZ$1.00 = US$0.70 and crude protein = true protein + 0.15%, the calculation is as follows:
US$11.50 per cwt = NZ$16.43 per cwt
Milk composition = 3.7% fat + (3.0 + 0.15)% crude protein = 6.85% milk solids mass/mass
1 cwt of milk / 220.4 = 45.4 kilograms
$NZ $16.43/cwt/45.4/0.0685 = $NZ 5.28/kg DM CP (crude protein)
For an Australian farmer, it is not necessary to adjust for crude protein: milk solids = 3.7% + 3.0% = 6.7%. Assuming an exchange rate of $AU 1.00 = $US 0.87:
US$11.50 per cwt = A$13.22 per cwt
AU 13.22 / cwt / 45.4 / 0.065 = AU 4.35 / kg DM TP (true protein)
A UK farmer wants to know how much this is in pennies per liter for his typical milk composition of 4.2% fat and 3.4% crude protein (~3.25% true protein). This question is a bit more difficult because we don’t know the value of the individual fat and protein components. The best we can do is assume that the milk solids value is the same. That will give a reasonably close approximation if the fat to protein ratio is similar in both cases. So assuming: $US 1.00 = 63 English pence
$US 11.50 / cwt = 724.5 pence / cwt (7.25 British pounds / cwt)
724.5 pence/cwt / 45.4 = 16.0 pence/kilogram
16.0 pence/kilogram x 1.03 = 16.4 pence/liter
However, this is the price with a composition of 3.7% fat and 3.0% true protein. To obtain an estimate of the European farmer’s component price, apply the relative proportion of total milk solids:
16.4 pence/litre x (4.2 + 3.25) / (3.7 + 3.0) = 18.2 pence per litre.
On the European continent they think in euros / 100 kg of milk. We will take a shortcut here and convert from pence per liter to euros/100kg assuming the same milk composition as the UK farmer. With an exchange rate of 1.00 euro = 92 English pence:
18.2 pence per liter = 19.8 euros / 100 liters
19.8 euros / 100 liters / 1.03 = 19.2 euros / 100 kg