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 widely within many countries, let alone when currency is taken into account.

Most commonly milk price is reported as a value per volume or weight of milk. For example: cents per litre (cpl); dollars per hundredweight ($/cwt); or euro per 100 kilograms. The major problem with these price bases is that actual payments for milk are typically for the components of fat, protein and other solids – very few dairy 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 one standard composition when it comes to comparing local and international prices.  Presented here are some of the factors that need to be taken into account when making comparisons.

Currency: This is an obvious issue but consideration needs to be given to a choice between:  the current daily rate; the annual average conversion rate; the weighted average conversion rate.  In the latter case the currency exchange rate should to be weighted to the timing of payments to farmers.

Fat and Protein Composition:  It is normal for farmers to be paid on the basis of the milk fat and protein composition.  This can have a dramatic affect on the milk price when expressed in cpl.  So for example the cpl milk price for a jersey cow with high milk components can be more than 50% higher than a fresian / holstein cow. 

Typical composition of cows milk in the major global dairy exporters 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 add to the confusion, reported USDA milk prices in $/cwt are based on a fat composition of 3.5% and the Eurostat milk prices are based on 3.7% fat. 

There is no standard for Australian and New Zealand milk price and the safest measure of local price is when expressed as $ / kilogram of milk solids ($ / kg MS).  Milk solids is defined as the sum of fat and protein measurement in milk.

Mass or Volume Measurement:  As well as the fat and protein composition of milk you also need to know whether the test measurement is expressed as mass / mass (eg. kg / kg) or mass / volume (eg. kg / litre).   The typical density of milk is close to 1.03 grams / litre so an error here can affect the milk price calculation by 3%.

True or Crude Protein: Crude protein is an estimate of milk protein composition based on nitrogen measurements (typically by Kjeldahl nitrogen testing).  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 calibrated near infrared measurement.    The difference between crude and true protein equates to what is termed “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 milk price by as much as 5%.

In the US and Australia milk protein content is typically reported as true protein whereas in the EU and NZ, more often crude protein is used.

Example Calculation: Here is an example of how you might convert a reported milk price from one country to another taking account of the factors above:

A US farmer gets paid $US 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 MS with the milk solids being equal to fat + crude protein. Assuming an exchange rate of $NZ 1.00 = $US 0.70, and that 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 / mass

1 cwt milk / 220.4 = 45.4 kilograms

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

For an Australian Farmer 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 (true protein)

A UK farmer wants to know what this is in pence cents per litre at their typical milk composition of 4.2% fat and 3.4% crude protein (~ 3.25% true protein). This question is a bit harder because we don’t know the value of the individual fat and protein components. The best we can do is assume that the value of milk solids is the same. That will give a reasonably close approximation if the ratio of fat to protein is similar in both cases. So assuming: $US 1.00 = 63 English pence

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

724.5 pence / cwt / 45.4 = 16.0 pence / kilogram

16.0 pence / kilogram x 1.03 = 16.4 pence / litre

This is however the price at a composition of 3.7% fat and 3.0% true protein. To get an estimate at the component pricing of the european farmer apply the relative ratio of total milk solids:

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

Over on the European continent they think in euros / 100 kg of milk. We’ll take a shortcut here and convert from pence per litre to Euros / 100 kg assuming the same milk composition as the UK farmer. With an exchange rate of 1.00 euro = 92 English pence:

18.2 pence per litre = 19.8 euro / 100 litres

19.8 euro / 100 litres / 1.03 = 19.2 euro / 100 kg

Source by Jon Hauser

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