Global factors support final price of $5.80/kg
RABOBANK HAS predicted a final farmgate milk price for southern export regions to $5.40-$5.80/ kg MS in its newly-released Global Dairy Quarterly report.
This farmgate milk price is slightly higher than the previous forecast and supported by a better-than-expected butter fat price.
Rabobank senior dairy analyst Michael Harvey said opening prices announced by southern Australian dairy processors are in line with Rabobank’s expectations.
“We expect global markets to remain well balanced through the 2017/18 Australian season, and while global pricing has reached the peak of the cycle, markets are set to remain well balanced for the next 12 months.”
Rabobank expects to see a recovery of about 3% in Australian milk supply in the coming season.
While this represents a “decent” level of supply growth, Mr Harvey said it only goes part way towards replacing the supply lost last season.
“Since the start of the 2016/17 season, Australia’s national milk supply has fallen by more than 660 million litres, or 8%, compared with the same period the previous season,” he said.
“Not surprisingly, more than 80% of that decline has come from Victoria and 50% from northern Victoria alone.”
Mr Harvey said milk volume was an issue confronting most dairy processors.
“The national trend has seen milk being prioritised over cheese, skim milk powder/butter and liquid streams,” he said.
Looking globally, the report says the dairy market continues to move back towards modest year-on-year milk supply growth in the major export regions.
New Zealand, the world’s largest dairy exporter, has started its new season with expectations of healthy year-on-year production growth, due to higher milk prices and compared with the weak level of production last season.
While China – after disappointing import growth for the year to April – is expected to be a more substantial buyer on global markets in the second half of 2017 which will help keep the global market balanced.
“These global factors should continue to keep prices relatively range-bound through the forecast period,” Mr Harvey said. “While demand growth for dairy in developed markets will remain strong, reducing export surpluses and countering more sporadic demand growth in developing markets.”
The report says Australia’s exportable milk surplus had significantly contracted over the past 12 months.
In the period from July 2016 to April 2017, dairy export volumes from Australia fell 2.1%.
“Trade in skim milk powder and butter has been hit hardest due to reduced production and product shortages in the local market,” Mr Harvey said.
“As the season winds down and the focus shifts to the new selling season, inventories are low in Australia.”