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.

Published in General News

While the world market for dairy products is in much better shape going into the 2017/18 southern production season, there are still a few risks that may weaken milk prices for Southern Australian dairy farmers.

Published in Agribusiness
Friday, 23 June 2017 14:49

Poor policy delivers a butter spike

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. 

Published in Agribusiness
Monday, 24 April 2017 18:24

Keep it simple, farmers tell processors

Dairy farmers want simpler payment systems and more market intelligence from their suppliers, according to a survey commissioned by the Union Dairy Company and co-funded by the South Australia Dairy Industry Fund.

Published in General News
Tuesday, 14 March 2017 12:07

Competing in a post-truth world

The 2016 US presidential election and Brexit vote brought a serious reality into our lounge rooms and onto our computer screens:  the plague of fake news swaying society in a post-truth world.    

Published in General News
Monday, 09 January 2017 15:47

Moderate gains as outlook lifts

GLOBAL dairy market analysts Freshagenda have released their latest forecast for 2016/17 and 2017/18 farmgate milk prices in southern Australia, and say the news is positive for farmers.

Published in Agribusiness
Friday, 14 October 2016 11:30

Climbing back up the hill

WITH farmers no doubt focussed on the big wet across southern Australia, we’ll keep our focus on how the dairy market is behaving in the background, and what it means for farmgate prices. 

Published in Agribusiness
Monday, 12 September 2016 11:20

Opinion: Falling milk output will bite

AUSTRALIA’S milk production is set to fall significantly in the 2016/17 season due to the damage caused to farm cashflows and industry confidence after the late cuts to milk prices in April this year.

Published in Agribusiness
Friday, 20 May 2016 08:10

Looking beyond the blame game

OPINION: THERE has been plenty written about the dramatic slump in the earnings and milk price outlook for Australia’s largest farmer-owned dairy company. 

Published in Opinion

THERE has been plenty written about the dramatic slump in the earnings and milk price outlook for Australia’s largest farmer-owned dairy company.

I don’t wish to add to the newsprint column space on what, why or how that happened at Murray Goulburn.

It is now fact, it can’t be undone, and there is little merit or therapy gained in maintaining the rage and spending time on recriminations.

What’s more useful is to consider the effect of this sudden downturn in available milk prices from MG on the Australian dairy sector as a whole, and on individual producers considering the market and industry outlook.

The outcome has implications for almost every dairy farmer in the industry, who can expect milk prices in the coming years to be lower than what might have been in prospect if MG had managed to deliver on this year’s forecasts.

This event has a number impacts – on leverage, confidence and reputation – in that order.


“Leverage” here refers to the ability of a large farmer-owned milk buyer to positively influence milk prices paid by its competitors.

In recent years, MG has focused on improving performance in milk prices, forcing its competitors to match or better it.

When the major farmer-owned buyer of milk has been weakened, effective leverage at farmgate can’t be sustained.

Almost every dairy farmer in the eastern seaboard of the industry is adversely affected, in terms of available milk prices, by a weakening of the major co-operative.

In the short-term it seems that Murray Goulburn’s competitors will continue to honour milk price estimates for the current 2015-16 season which were made prior to 27 April.

They will do this with some difficulty given the realities of the dairy commodity markets. 

Fonterra's announcement of a similar cut in prices coupled with a finance assistance package clarifies their pain.

It’s the coming seasons that matter.

Despite what will be claimed, with a 20-30c/kg milk solids finance charge against their largest competitor’s milk pool, Bega, Warrnambool, and others will be under significantly less pressure to optimise farmgate prices – other than the need to ensure they can reliably collect enough milk for their business needs.

That was the situation in the industry prior to 2013 and that will be the case for the next two seasons at least as the effects of this event are unwound.


Years of research into what mostly affects the confidence of dairy farmers have shown that a positive belief in the industry’s future depends on the outlook for milk prices.

While MG’s balance sheet will be used to sustain most of the current season’s promised milk price, the prospects for the next few seasons matter most for producer confidence.

Dairy commodity prices drive the value of milk in the industry – despite lower industry exports than previously we are still inextricably part of a global market place.

Dairy companies have different business models, product and market mixes – and different abilities to flex.
Over time, some will do much better than others in outperforming the price extracted from a commodity manufacturing base – “adding-value” as it is unfortunately termed.

By our reckoning, the commodity value of milk is close to $4.50kg/MS in 2015/16.

At present, with spot and forward prices in the market, we have trouble getting our estimate of commodity returns for the 2016/17 season to land above $5kg/MS.

Dairy product prices – on average – will have to rise more than 15% (as a season average) to get there, but by 25% before we can be confident milk is worth more than $5.50 again.

If the A$ falls – as currency punters are suggesting – that farmgate price result will be easier to achieve.

Companies can and will add to this commodity return via their various activities. But it all comes back to what the biggest player can achieve, and how much of the strategy can deliver in additional income.

What are the chances of either of those market outcomes?

On our present outlook, a recovery in dairy prices is gradually underway, but won’t really make any headway until early next year when slower growth in Europe and New Zealand ensures global export supply slips behind import demand.

Right now, those supply and demand totals are running neck and neck currently, but stockpiles of powder and cheese are still building.

Talk of the $A falling into the low US70c range has been going for ages, but recovering mineral commodity prices may work against that.

There has been an expectation created in Australia’s production sector that outperformance of the commodity value is readily achievable.

in reality, it is hard for a dairy company with a large pool of milk to sustain that outperformance over time, but some have been very good at it.

It needs a combination of outstanding management execution, high-quality assets and strong market and/or product and process innovation.

Promising outperformance without consistently ticking all those boxes leads to disappointment.

What also unsettles confidence is a broken promise or shattered belief. Time and actions to ensure performance exceeds expectation will be required to fix that in the future.

But what of the confidence of investors – providers of debt and external equity?

Investors in the dairy farm sector are always interested in the capacity for Australian processors to perform well on milk prices, and despite this latest stumble, comparisons with our neighbours over the ditch are still favourable.


The news of this event quickly went across the dairy world.

I was in meetings with US and European industry participants in Chicago when news broke, and it quickly became the talking point of the event.

All of a sudden the external perception of the Australian industry was in discussion.

Does this make Australian milk supply any less attractive to international customers? No.

Does it make them question the stability of milk production over time? Perhaps.

Does it mean we might figure less in their plans for securing a growing pool of high-quality milk supply in future? Maybe.

This aspect of reputation won’t be enhanced in the short-term, but this also comes back to confidence, and whether milk producers can take stock, adapt and press on.

Time will tell.

Published in General News
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