We're getting close to the peak of the production season in southern Australia, in one of the most tumultuous periods in the recent history of the industry. In the past 18 months, an unprecedented volume of milk has moved between major dairy companies in a short space of time, and most likely has some way to go yet, as the aftershocks of the major step-down in milk prices towards the end of the 2015-16 season continue to reverberate.
The current season 2016/17 farmgate milk price paid by dairy product manufacturers is tipped to range between $5.00 to $5.40/kgMS.
The outlook has improved over the season, Freshagenda’s previous forecast was a range of $4.80 to $5.20/kgMS.
The updated forecast reflects the net effects of:
- Higher global commodity product prices, helped by worse-than-expected milk output from major European producers, and recently led up by a surge in GDT prices for WMP which has lifted spot and other reference prices;
- Strong cheese demand in developing markets;
- A sharp fall in Australian milk production which will increase manufacturing conversion costs;
- Continuing tight margins in local grocery markets for cheese; and
- A lower full year estimate for the value of the Australian dollar of $US0.74 with the return to positive interest rates in the US and prospects for weaker metal commodity prices in 2017.
For the 2017/18 season, further significant improvement is expected as the strong lifts in product spot values are locked into export and wholesale prices, giving a forecast range milk price between $5.90 to $6.30/kgMS.
The drop in global milk output will start to reverse in mid-2017 but take some time to impact product values.
Freshagenda director Steve Spencer says the forecast has been developed and updated to provide dairy farmers and other industry stakeholders with improved pricing transparency and an input to planning.
“There has been a lot of industry discussion since the events of April last year about the need for improved information on future directions in farmgate milk prices. We have had a lot of farmers tell us they would welcome clearer and more timely information on the market outlook and what it means for them on farm.”
Freshagenda’s forecast is based on its extensive Global Dairy Directions analysis, a commercial product provided to dairy companies, ingredient buyers and traders in Australia, New Zealand, Europe, Asia and the US.
This provides a unique platform to project international commodity values, which are then converted into an average farmgate milk prices based on relevant product mix and exchange rate assumptions.
“Our analysis is independent of the dairy companies. It is based on global dairy market fundamentals and our deep understanding of local industry dynamics. We feel this independence is important in the current environment, as there has been damage done to the trust farmers have in price announcements of major companies.” Mr Spencer said.
“While our analysis provides an indicative forecast for prices, the results achieved by individual companies will vary based on company product mix, exposures to global and domestic markets and the ability of different business models to capture higher value above commodity returns.”
An explanatory note outlines the outlook and the factors affecting the improved market settings for dairy farmers. (Source: Fresh Agenda)