The Australian Milk Price Initiative (AMPI) ran its first regional milk spot markets for western Victorian, northern Victorian and eastern Victorian milk.
Under AMPI, milk straight from the farm is sold online for delivery to Victorian dairy factories.
In Thursday’s inaugural market, 200,000 litres of milk was traded at $9.60 a kilogram milk solids for May delivery in both western and eastern Victoria.
Trades were also made in western Victoria for next season milk with 100,000 litres traded at $8.50/kg MS for September delivery, 200,000 litres at $8.45/kg MS for October delivery and 100,000 litres at $8.45 for November delivery.
In northern Victoria, 100,000 litres traded at $8.75/kg MS for January delivery, 200,000 litres traded at $8.75/kg for February delivery and 100,000 litres traded at $8.80/kg MS for March 2023 delivery.
The market was launched on the Mercari platform, which is owned and operated by Mercari Pty Ltd.
AMPI partner Garry Booth said the launch of the market had exceeded their expectations.
It was pleasing to see some milk traded as it was a new concept for people.
The trading of the physical contracts was a vital first step in eventually establishing a derivatives market for milk, which would provide hedging tools for farmers, he said.
In 2019 the federal government provided Australian Dairy Farmers with $560,000 towards the development of a milk trading platform, which led to the development of AMPI.
ADF president Rick Gladigau said the first trades provided positive signs.
“There is no more transparent price signal than an open market price,” he said.
“AMPI will improve risk management across the supply chain with back-to-back pricing from customer to processor to farmer, providing the ability to lock in margins across the chain.
“Better margin and risk management enables better planning, which, in turn, drives investment and growth across the supply chain.
“More investment in the supply chain means a strong dairy industry.”
Regional spot markets like AMPI deliver the monthly price transparency necessary to enable a forward hedging market like those seen in New Zealand, the United States and Europe.
Such markets enable dairy farmers and processors to lock in prices up to three years forward for some of their milk.
Mr Gladigau said while the launch of the AMPI was an important step, more work was needed.
“Effort is required in the future to ensure appropriate governance and operations and there is a well-designed education or extension program delivered to farmers and processors on how to participate in this or other trading initiatives and how this makes a difference to their risk management and bottom line,” he said.
AMPI co-founder Scott Briggs told ABC Radio on Friday AMPI would reflect the true value of milk at all times.
“The problem we’ve got at the moment with milk pricing is that we put it out there on the first of June and that process is underwriting 12 months worth of of milk price,” he said.
Processors had dealt with this by having a big buffer for risk in the opening price and using step ups throughout the season, although this had been eroded in more recent years by competition.
“Regardless it’s one price discovery event every 12 months, it’s not really telling us what the price of milk is worth at all times,” he said.
“When I compare that to what New Zealand, the US and Europe have got, they’ve got a system that tells them what milk’s worth at all times, and it goes up and goes down.”
This would help provide more transparency and market information to farmers, which would help, for example, inform the debate around milk price step ups.
Mr Briggs said transparent markets provided the basis for hedging tools.
NZ farmers had access to tools that allowed them to lock in a portion of their future milk production at a set price.
“Those sorts of tools are the benefits that really drive growth for farmers or security for farmers,” he said.
Mr Briggs said hopefully that would bring some stability to the Australian dairy industry that would help it to grow.
The dairy market is available 2-2.30pm AEST on two Thursdays of each month.
Information and access to the market can be found at: https://riemann.com.au/products/.