Milk prices reported in the media can be confusing and misleading information for farmers, the dairy industry and the general public. The basis for valuation and reporting is very different in many countries, let alone considering the currency.
Most often, the milk price is given as a value per volume or weight of milk. For example: cents per liter (cpl); Dollars per hundredweight ($ / cwt); or euros per 100 kilograms. The main problem with these price bases is that the actual payments for milk are usually made for the components fat, protein and other solids – very few milk processors pay for water! You need to know the composition of the milk and this composition changes from farm to farm and from country to country. There is no uniform composition for comparing local and international prices. Here are some of the factors that need to be considered when making comparisons.
Currency: This is an obvious problem, but a choice must be made between: the current daily rate; the annual average exchange rate; the weighted average exchange rate. In the latter case, the exchange rate should be weighted according to the timing of payments to farmers.
Fat and protein composition: It is normal for farmers to be paid based on the composition of milk fat and protein. This can have a dramatic impact on the milk price if it is expressed in full. For example, the CPL milk price for a Jersey cow with a high milk content can be more than 50% higher than for a Fresian / Holstein cow.
Typical composition of cow's milk at the main global exporters of dairy products are: 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 increase the confusion, the USDA milk prices quoted in USD / cwt are based on a fat composition of 3.5% and the Eurostat milk prices on 3.7% fat.
There is no standard for the Australian and New Zealand milk prices and the safest measure for the local price is expressed in USD / kg milk solids (USD / kg MS). Milk solids are defined as the sum of fat and protein measurements in milk.
Mass or volume measurement: In addition to the fat and protein composition of milk, you also need to know whether the test measurement is expressed as mass / mass (e.g. kg / kg) or mass / volume (e.g. kg / liter). The typical milk density is close to 1.03 grams / liter, so an error can affect the milk price calculation by 3%.
Real or raw protein: Crude protein is an estimate of the milk protein composition based on nitrogen measurements (typically from Kjeldahl nitrogen tests). The milk protein content is calculated from an international standard factor of nitrogen x 6.38.
True protein is an estimate of the actual milk protein based on a calibrated near infrared measurement. The difference between raw and real protein is what is called "non-protein nitrogen" (NPN).
It is estimated that a true protein measurement gives a result that is 0.1 – 0.2% lower than that of raw protein. This can influence the calculation of the milk price by up to 5%.
In the United States and Australia, milk protein levels are usually reported as real proteins, while crude protein is more commonly used in the EU and New Zealand.
Example Calculation: Here is an example of how you can convert a reported milk price from one country to another, taking into account the above factors:
A US farmer receives a fee of USD 11.50 per hundred for milk with a composition of 3.7% fat and 3.0% real protein, based on mass / mass.
A New Zealand farmer wants to know what this means for NZ $ / kg MS, where the milk solids correspond to fat + raw protein. Assuming an exchange rate of NZ $ 1.00 = US $ 0.70 and crude protein = real protein + 0.15%, the following calculation results:
$ 11.50 / cwt = $ 16.43 / cwt
Milk composition = 3.7% fat + (3.0 + 0.15)% crude protein = 6.85% milk solids mass / mass
1 cwt milk / 220.4 = 45.4 kg
$ NZ $ 16.43 / cwt / 45.4 / 0.0685 = $ NZ 5.28 / kg MS CP (crude protein)
It is not necessary for an Australian farmer to adjust raw protein – milk solids = 3.7% + 3.0% = 6.7%. Assuming an exchange rate of AU $ 1.00 = US $ 0.87:
$ 11.50 / cwt = $ 13.22 AU / cwt
AU $ 13.22 / cwt / 45.4 / 0.065 = AU $ 4.35 / kg MS TP (real protein)
A British farmer wants to know what this is in pence cents per liter with a typical milk composition of 4.2% fat and 3.4% crude protein (~ 3.25% real protein). This question is a little more difficult because we do not know the value of the individual fat and protein components. The best thing we can do is assume that the value of milk solids is the same. This gives a fairly close approximation if the fat to protein ratio is similar in both cases. So let's say $ 1.00 = 63 English pence
$ 11.50 / cwt = 724.5 pence / cwt (7.25 pounds / cwt)
724.5 pence / cwt / 45.4 = 16.0 pence / kilogram
16.0 pence / kilogram × 1.03 = 16.4 pence / liter
However, this is the price with a composition of 3.7% fat and 3.0% real protein. To get an estimate of the component prices of the European farmer, apply the relative ratio of total milk solids:
16.4p / liter x (4.2 + 3.25) / (3.7 + 3.0) = 18.2p / liter.
On the European continent they think in euros / 100 kg milk. We take a shortcut here and convert from pence per liter to euros / 100 kg, assuming the same milk composition as the British 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