THE sobering reality of an 18 month global dairy price slump and the recent strength in the Australian exchange rate is likely to be felt in the dairy industry for at least the next three years. industry experts say.
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As the fallout from big losses by Australia’s biggest dairy processor Murray Goulburn (MG) hit home this week, milk producers across much of eastern Australia were forced to rethink their budgets and anticipate flow-on cuts to farmgate prices paid by all milk companies in the 2016-2017 season.
Dairy Australia analyst John Droppert said next season’s milk prices have to fall from where they’ve been.
“Global prices have dropped 30 per cent since this season’s opening prices were announced less than a year ago,” Mr Droppert said.
“MG might have been largely responsible for stretching the potential for farmgate prices last year, but every other processor was also expecting a global price recovery this season and it hasn’t happened,” he said.
Rabobank this week forecast world dairy commodity price weakness for another six months at least, with European milk production up 5.4 per cent in the past three months and stocks building rapidly to add to the world’s oversupply problems.
Global average prices for butter, milk powder and cheese have halved from around the $US5000 a tonne in early 2014 and are still trending lower.
Mr Droppert said while most southern Australian dairy farmers considered $5.50 a kilogram for milk solids as a break-even point, the betting was for next season’s opening farmgate payments to be in the “high $4kg to low $5kg range”.
He said the Australian dollar’s jump to around US77c this year - about US10c above expectations - had not helped.
The anticipated US5c depreciation in the exchange rate in the first half of 2016 would have equated to about a 30c/kg boost in milk prices, but instead the dollar started climbing, Mr Droppert said.
Australian Dairy Farmers (ADF), the national dairy farmers advocacy group, has encouraged all dairy processors to support their farmers during the current tough times.
It has urged Fonterra, which is yet to confirm this season’s prices, to "break its silence."