Dairy returns aren't that volatile

It has become commonplace to say that dairy returns are volatile - "volatility has become the norm" I hear people say.

Certainly it is true that month on month dairy commodity prices seem volatile with the past 12 months a good case in point - with the past three or four months seeing a more than 20% fall in prices but from the second highest peak ever.

But the following chart shows that not only is the dairy price heading the right way but it is less variable than the headlines suggest.  Statistically, when the effect of inflation is taken into account, 95% of the time the payout varies by less than ± $1/kgMS.

When considering farm profit margins from an area like Canterbury, the variability is less - with exchange rate modifying dairy highs and lows and the effect of advance and deferred payments on smoothing cashflow over the season farm profitability is relatively consistent.  Earnings before interest and tax have been a relatively consistent $2/kgMS to $3.50/kgMS.

So with an appropriate (low) debt structure can dairy deliver consistent returns despite fluctuations in the month on month prices?  It definitely seems so.