Milk price cycle sets the tone for market

THE global farmgate milk price cycle has turned and set the tone for a more bullish market, with a Southern Australia full-year price of AUD6.40/kgMS now within reach for 2018/19, according to Rabobank’s latest Dairy Quarterly report.

The specialist agribusiness bank says with milk supply growth out of Europe and the US failing to meet market expectations, global farmgate milk prices have moved off the lows posted at the start of the year and are expected to move seasonally higher through the second half of 2018.

Report author Rabobank senior dairy analyst Michael Harvey said the rally in global commodity prices, driven by unfavourable weather which tempered milk production in the EU spring peak, and expectations for the Australian dollar to ease slightly, had fed into the bank’s upward revision to its full-year forecast of AUD6.40/kgMS for the 2018/19 Southern Australia farmgate milk commodity price.

“Recent milk pricing announcements in a number of regions, including Australia, confirm that the price cycle has now turned in most key export regions,” he said.

“While this will trigger a supply response, this response is likely to take time and be curbed somewhat by the pressure of rising feed costs on farm margins, and as such the global market is expected to remain well-balanced for the next six months.”

Mr Harvey said while China was also set to re-enter the market in a more meaningful way, increasing their import requirements in coming months, there were some downside risks to the outlook that warranted monitoring.

These were the strength of the spring production peak in New Zealand, notwithstanding the impact of Mycoplasma bovis disease, and trade war tensions between the US and Mexico, and also Canada.