DECLINING global dairy prices are likely to mean Australian milk prices are unlikely to rise at least until 2017, a Dairy Australia (DA) industry analyst says.
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John Droppert said the lacklustre global dairy market meant dairy farmers should be “conservative” in their income forecasts and do their estimates “on what is in their pockets now.”
DA’s latest Situation and Outlook report gives little hope of dairy processors providing any step ups in milk prices before the 2015-2016 season closes,
Mr Droppert pointed out that even Murray Goulburn (MG) had said its estimated $6.05/kg milk solids closing price would be subject to changes in global dairy commodity prices.
MG said it would comment on its likely closing milk price in its half-year results update to the Australian Securities Exchange on February 29.
DA’s Situation and Outlook report said increased northern hemisphere production was outweighing any recovery in global demand and lowering international commodity prices.
Mr Droppert said the end of milk quotas in the European Union last year had not reduced milk production there as expected. EU producers appeared intent on growing their market share and were maintaining or increasing production despite the drop in milk prices.
The lift in production has meant Global Dairy Trade prices dropped 25 per cent in the 12 months to February this year.
However DA said the stable Australian market and a more favourable exchange rate had buffered Australian dairy farmers against the declining world prices, high input costs and the dry season.
“The Australian market has remained a steady outlet for well over half of the industry’s milk. Supermarket sales for dairy spreads continue to grow strongly, while milk, cheese and yoghurt sales are steadier,” Mr Droppert said.
The Situation and Outlook report also said dry conditions and high input costs were tightening margins for Australia’s dairy farmers, and reducing national milk production.
A drop in milk production for 2015-16 is expected after a slow spring and summer and national volume was down 0.2 per cent for the season at the end of December.
“Elevated prices for grain and hay, combined with lower milk prices, have reduced the incentive for farmers to draw on alternative feed sources to maintain or grow production,” Mr Droppert said.
Mr Droppert said a recovery in global dairy prices was unlikely in the near future with the upcoming spring production in the northern hemisphere and ongoing sluggish demand from key markets.
