Recent global auction prices for whole milk powder are improving, after two years of rock bottom values, while world sale prices of commodities such as butter and cheese are back above five-year averages.
Milk prices paid to New Zealand dairy farmers — the most globally exposed — have jumped to a high of $6 per kilogram of milk solids, although Australian dairy farmers continue to be paid between $4.75/kg and $5.13/kg.
The world supply of milk has also fallen by as much as 7 per cent, better balancing supply and demand.
Australian dairy farmers have slashed their own milk production after the savage and retrospective cut to farmgate milk prices by the dominant milk processor Murray Goulburn last April was mirrored by Fonterra and most other major processors.
Dairy Australia analyst John Droppert said local milk production fell 10 per cent in May, June and July last year, as farmers facing ruin culled old cows and stopped supplementary feeding of milking herds.
But Mr Droppert expects the overall fall in national milk production for 2016-17, compared to the total 9.5 billion litres produced in the previous year, to average between 6-8 per cent, as remaining farmers get on top of their debt loads and milk prices slowly lift.
While Murray Goulburn continues to pay sub-$5/kg prices, Fonterra recently lifted the average 2016-17 milk price paid to its supplying farmers to $5.20/kg. Other companies are expected to make even bigger price “step-ups” before June 30.
Rabobank analyst Michael Harvey recently predicted that the super-buoyant farmgate milk price of $6/kg — the unachievable MG boast that brought its former CEO Gary Helou undone last April — could be on offer in Australia this year.
“The 2017 calendar year has started on a more positive note for the industry, but the overhanging issues from the events of 2016 will not be erased overnight,” Mr Droppert said.
“Better seasonal and margin indicators are encouraging, but ongoing challenges surrounding confidence and trust remain big impositions for many farmers in southeast Australia.
“Improved farmgate profitability will help, and the current market settings look conducive to delivering this, albeit not without risk, given the threats posed by resurgent supply growth internationally and broader political and economic disruption.”
Mr Droppert acknowledged production margins remained tight or negative for many farmers, with most carrying large debts after having to refund Murray Goulburn’s loathed “overpayment clawback” or take on new loans offered by Fonterra after it last year slashed its milk price from $5.60 to just $1.91/kg for the two months of May and June.
Australian consumers have remained loyal in their efforts to help battling Australian dairy farmers by switching from $1/litre supermarket private label fresh milk to more expensive branded products.
Source: The Australian
