It’s strange times for the global dairy market, and one of the crazier things we’re seeing is how the butterfat market has performed lately.
Warrnambool Cheese and Butter took the unusual step of advertising in local newspapers in south west Victoria and south east SA, detailing its new farmgate payment package.
WCB is seeking another 50 million litres of milk after investing $5 million in new capability in its Allansford powder plant near Warrnambool, and $3.5m to expand its Sungold milk plant by 50%.
It is also upgrading its speciality cheese operation in Mt Gambier.
Gippsland farmers are also being pursued, with Longwarry Food Park planning a new UHT milk line requiring between 20-30m litres each year – or an additional 10-15% more.
Investment has also been increased in Tasmania with the announcement of the new Tasmanian Dairy Products milk powder facility for Smithton, National Foods investment at Burnie and further investment at Fonterra's Spreyton factory.
Murray Goulburn is doubling the capacity of its sole packaging plant in China, which packages infant formula produced at its Cobram plant in northern Victoria.
Outgoing chairman Grant Davies says this will require greater output from Cobram and MG will take as much milk as possible.
"We all know the affects drought has had on northern Victoria in the past 10-12 years but the good thing is we're starting to see a turnaround in milk production," Davies says.
"It's not huge, but we're starting to see it turnaround. We can certainly put that milk to good value at the moment.
"Companies are out and about and they want extra supply. There's healthy competition out there for milk and we'll be doing our darnedest to keep that milk within our company."
WCB CEO David Lord says its 2010-11 year payout of $5.75/kg MS was the second highest in its history and was largely an outcome of strength of international markets for dairy products.
"We have very strong markets in Asia, Japan in particular, the Middle East. Demand for dairy protein in all forms has been steadily growing year on year, and the last 12 months in particular has been very strong," he told ABC Radio.
"With the strength of the markets being what it is, processors like us want to make sure they are fully utilised, we want to make sure our plant is full, and that we are manufacturing the maximum amount of products we can to take advantage of those markets.
"I imagine our competitors are thinking in the same way we are and would be looking for more supply."
Dairy Australia analyst Joanne Bills says all the companies are conscious they need to offer farmers an incentive to produce more milk after some very tough years.
"It's fair to say all of them are offering the best prices they possibly can to send out positive signals to farmers," Bills says.
Bills says the companies would probably prefer that their existing suppliers can supply the additional amount.
"A lot of the companies have provided growth incentives in their payment systems to encourage that growth. But certainly if their current supply base isn't willing or able to grow, they're equally happy to take on new suppliers.
"Anecdotally, we know there are farmers looking at the different options available, particularly in a region like Gippsland where there are so many companies on the lookout for milk. Some of them may be switching."