GI­ANT BAT­TLE LOOMS FOR MILK

Blue skies over har­vest sea­son

Tasmanian Country - - FRONT PAGE - KAROLIN MACGRE­GOR

A LOOM­ING bat­tle over milk sup­ply be­tween dairy giants Sa­puto and Fon­terra could be good news for Tas­ma­nian sup­pli­ers.

With global prices ex­pected to im­prove later this year and both com­pa­nies look­ing to shore up more sup­plies, a new re­port for Rabobank says farm­ers can look for­ward to a prof­itable sea­son in 2018-2019.

Re­port au­thor, Rabobank se­nior dairy an­a­lyst Michael Har­vey, said com­pet­i­tive pres­sure for milk sup­ply was likely to in­ten­sify next sea­son af­ter Sa­puto got the nod to buy Mur­ray Goul­burn.

He said this would trans­late into higher pre­mi­ums to farm­ers and help com­pen­sate for lower com­mod­ity prices.

“In the global mar­ket, while risks loom in the near term and this is likely to see dairy com­pa­nies take a con­ser­va­tive ap­proach when open­ing their prices for the 2018-2019 sea­son, the prospects for a grad­ual tight­en­ing in global dairy mar­kets is bright,” he said.

While the bank is fore­cast­ing a base far­m­gate price of $5.40 per kilo­gram of milk solids in 2018-2019 it says com­pe­ti­tion for milk is likely to boost value-add pay­ments.

Rabobank ex­pects aver­age far­m­gate prices of 5.40/kgMS to $5.90/kgMS for 2018-2019.

Tas­ma­nian Farm­ers and Gra­ziers As­so­ci­a­tion dairy coun­cil chair­man An­drew Lester said while farm­ers would wel­come more com­pe­ti­tion, he was urg­ing some caution.

“Things are cer­tainly look­ing more pos­i­tive than they were ear­lier in the piece and it would be good to see some higher prices,” he said.

“The one thing I‘d say is when com­pa­nies are pay­ing more to get sup­ply and that's not re­flect­ing what the mar­ket is do­ing, there’s al­ways a risk in that, so farm­ers do need to be cau­tious.”

The re­port says the Aus­tralian dairy sec­tor has made pos­i­tive strides this sea­son.

“While the in­dus­try has a struc­turally lower dairy herd, there are enough of the key in­gre­di­ents in place to sup­port milk pro­duc­tion growth for a sec­ond con­sec­u­tive sea­son.”

The bank is fore­cast­ing do­mes­tic pro­duc­tion to lift by 2.7 per cent in 2018-2019 to de­liver an ad­di­tional 170 mil­lion litres of milk to the mar­ket.

This fol­lows the boost of 3.2 per cent, or 390 mil­lion litres, in the cur­rent sea­son.

Given the in­crease in Aus­tralian sup­ply and the repo­si­tion­ing of the milk pool, the re­port says a big bat­tle looms.

“At the front­line are the two large in­ter­na­tional com­pa­nies butting heads over milk sup­ply,” Mr Har­vey said.

He said Sa­puto was look­ing win back sup­ply while Fon­terra mapped out ex­pan­sion.

Mr Har­vey said Sa­puto’s ac­qui­si­tion of MG, pend­ing ap­proval by the For­eign In­vest­ment Re­view Board, was set to “fun­da­men­tally trans­form” the own­er­ship of the milk-sup­ply chain.

He said with MG’s ex­cess ca­pac­ity of more than 1 bil­lion litres, Sa­puto would be look­ing to win back that lost sup­ply while other pro­ces­sors would fight to re­tain their sup­pli­ers.

Mr Har­vey 900 mil­lion litres of ca­pac­ity was to be built over the next two years, fol­low­ing 1 bil­lion litres of new ca­pac­ity in the past two sea­sons.

Fon­terra Aus­tralia said ed this week Tas­ma­nian farm­ers had the op­tion to sign up for its fixed base milk price in­cen­tive, where they can lock in a set price for up to 70 per cent of the sea­son’s milk.

At the front­line are two large in­ter­na­tional com­pa­nies butting heads over milk sup­ply

MICHAEL HAR­VEY

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