Global dairy prices are rising as farmers around the world cut back on production, but local prices are still below the cost of production for many south-east Australian farmers.
The previous Global Dairy Trade auction, run twice a month by New Zealand cooperative Fonterra, saw prices lift by 1.7 per cent, lifting the index of bulk commodities to its highest level since March 2015.
Analysis by National Australia Bank revealed its own index of dairy export prices lifting 21.5 per cent in September.
Improved market conditions have led processors in Australian and New Zealand, including Murray Goulburn, Fonterra and NZ’s Tutua to lift prices from their initial offering at the season’s opening in July.
But for many farmers, the price rises will be cold comfort until they lift beyond the break even point.
“Warrnambool Cheese and Butter is advertising their current price at $5 per kilogram of milk solids (kgms),” dairy farmer Nicholas Renyard said.
“I put that into my spreadsheet last night and that it gets us to the $4.80 kgms mark, so it’s moving in the right direction.
“We’re not at a profitable point yet, but it’s looking more positive [and] I’m hoping with a few changes that we’re making that we’ll be in amongst them very soon.”
Production on Mr Renyard’s farm is dropping slightly this year off the back of a harsher winter, but he is not culling cattle to cut back.
Many farmers getting rid of cattle says analyst
Rabobank senior analyst Michael Harvey said recent figures indicated many farmers were taking advantage of the high beef price and getting rid of cattle.
“The numbers have certainly come through for July showing production down in double digits,” Mr Harvey said.
“It indicates how severe the situation is for producers and the need to produce stocking rates.”
A driving force behind the dairy crisis that hit south-east Australian farmers this year was the combined effect of Europe removing its production quotas, Russia banning dairy imports and a drop in demand from China.
In Europe, where analysts expect a 40 per cent reduction in dairy farms by 2025, farmers will be soon be offered government payouts to reduce output.
However, NAB agricultural economist Phin Ziebell is not predicting underlying demand to change over the medium term.
“With the oil price crash, you’ve seen problems with the rouble and the Russian economy more broadly, so their ability to buy back into global dairy markets even absent an embargo is an open question,” Mr Ziebell said.
“On the China story, the steady domestic rise in production, despite it being high in cost, is a real limit to the upside there, particularly for commodity grade milk powders.”
The next Global Dairy Trade auction takes place on 4 October 2016.
Source: ABC
