How To Get A Weighted Average To A Non Weighted Global Milk Price Conversion

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Global Milk Price Conversion

Milk prices reported in the media can be confusing and misleading information for farmers, the dairy industry, and the public. The basis of measurement and reporting varies greatly between countries, especially when it comes to money.

Milk price is usually reported as value per volume or weight of milk. Examples: cents per liter (cpl); dollars per hundredweight ($/cwt); or euro per 100 kilos. The main problem with these price bases is that milk is generally paid for fat, protein and other substances – very few milk producers pay for water! You need to know the composition of milk and this composition changes from farm to farm and from country to country. There is no standard formulation when it comes to comparing domestic and international prices. Here are some factors to consider when making a comparison.

Money: This is an obvious problem but we need to consider the choice between: the current daily rate; annual conversion rate; weighted average conversion rate. In this last case, the exchange rate should be weighted at the time of payment to the farmers.

Fat and protein:It is normal for farmers to pay for milk fat and protein. This can have a significant impact on milk prices when expressed in cpl. So for example the milk price cpl for jersey cows with high milk content can be more than 50% higher than fresian / holstein cows.

The composition of cow’s milk of the world’s main milk exporters is: Europe – 4.2% fat, 3.4% protein; USA 3.7% fat, 3.0% protein; New Zealand – 4.7% fat, 3.7% protein; Australia 4.1% fat, 3.3% protein.

To add to the confusion, USDA milk prices in $/cwt are based on 3.5% total fat and Eurostat milk prices are based on 3.7% fat.

There is no standard for Australian and New Zealand milk prices and the most reliable measure of local prices is when milk solids are expressed in $/kg ($/kg MS). Milk solids are defined as the total fat and protein content of milk.

Measurement of mass or volume: In the same way, the fat and protein composition of milk also needs to know if the measurement test is expressed as mass / mass (eg. kg / kilogram) or mass / volume (eg. kg / liter). The normal density of milk is close to 1.03 grams / liter so the error here can affect the calculation of the price of milk by 3%.

True or false protein: Crude protein is an estimate of total milk protein based on nitrogen measurement (usually the Kjeldahl nitrogen test). The protein content of milk is calculated from the international factor of Nitrogen x 6.38.

The real protein is estimated real milk protein based on calibrated near infrared measurement. The difference between crude and true protein is the so-called “non protein nitrogen” (NPN).

It is estimated that an accurate protein measurement will give a result 0.1 – 0.2% lower than the protein. This can affect the milk price calculation by up to 5%.

In the US and Australia, the protein content of milk is often reported as actual protein, but in the EU and NZ, crude protein is often used.

Example calculation: Here is an example of how you can change the price of milk reported from one country to another by considering the above factors:

US farmers get paid $US 11.50 / cwt for milk with 3.7% fat and 3.0% true protein on a basis / mass.

A farmer in New Zealand wants to know what it is in $NZ / kg MS with the same milk fat + crude protein. Taking the exchange rate of $NZ 1.00 = $US 0.70, and crude protein = true protein + 0.15%, the calculation is as follows:

$US 11.50 / cwt = $NZ 16.43 / cwt

Milk composition = 3.7% fat + (3.0 + 0.15) % crude protein = 6.85% milk solids/mass

Milk 1 cwt / 220.4 = 45.4 kilos

$NZ $16.43 / cwt / 45.4 / .0685 = $NZ 5.28 / kg MS CP (crude protein)

For Australian farmers there is no need 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 / cwt = $AU 13.22 / cwt

$AU 13.22 / cwt / 45.4 / .065 = $AU 4.35 / kg MS TP (real protein)

A UK farmer wants to know what it is in pence cents per liter of normal milk composition with 4.2% fat and 3.4% crude protein (~3.25% actual protein). This question is a bit more complicated because we don’t know the weight of each component of fat and protein. The best we can do is to assume that milk solids weigh the same. This will give a close estimate if the ratio of fat to protein is the same in both cases. So to take: $US 1.00 = 63 British pence

$US 11.50 / cwt = 724.5 pence / cwt (7.25 British pounds / cwt)

724.5 pence / cwt / 45.4 = 16.0 pence / kilo

16.0 pence / kilo x 1.03 = 16.4 pence / litre

But this is the price of a total of 3.7% fat and 3.0% real protein. To get an estimate of the share price for European farmers, apply the total milk exchange rate:

16.4 pence / liter x (4.2 + 3.25) / (3.7 + 3.0) = 18.2 pence per litre.

In continental Europe, they consider euros / 100 kg of milk. We’re going to take a shortcut here and convert from pence per liter to Euros / 100 kg assuming UK farmers have the same composition of milk. With an exchange rate of 1.00 euro = 92 British pence:

18.2 pence per liter = 19.8 euros / 100 liters

19.8 euros / 100 liters / 1.03 = 19.2 euros / 100 kg

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