Dairy farmers should receive an average milk price of $6.10 a kilogram milk solids (kgms) in 2018-19, according to 2018 Rural Bank’s Australian Dairy Annual Review.
But the bank said the increasing cost of feed due to dry seasonal conditions in much of eastern Australia was likely to keep a lid on net farm income growth.
Rural Bank’s sales and distribution general manager Simon Dundon said Australian farmers across the country would all be hoping for rain this spring, particularly those in the drought-stricken areas.
Rural Bank’s forecast of $6.10 kgms provides further reassurance to the dairy industry that was nervous after Fonterra recently cut its forecast price for last season’s milk in New Zealand by A4c kgms.
Fonterra Australia said the price cut would not affect its Australian suppliers and it was confident its opening price of $5.85 kgms was “a market-led and sustainable milk price.”
Mr Dundon said global dairy prices should continue to improve as supply and demand rebalanced following a challenging period for the sector.
“Australian milk supply rose 3.3 per cent to 9.3 billion litres in 2017-18, but could not keep up with the increasing demand.
“Farm gate milk prices should continue to rise thanks to increasing demand for Australian dairy products, low milk supply relative to this demand, improving global dairy prices and strong competition from processors,” Mr Dundon said.
The report also found international exports of milk powder continued to drive value with exports to China reaching a high of 45,508 tonnes.
“Interestingly, while China is Australia’s largest export market, Thailand and Japan have emerged as growing markets for milk powder exports,” Mr Dundon said.
“If the global supply tightens, Australian dairy producers could expect the 12-month record for milk powder export volumes to be broken for the second consecutive year,” he said.
The bank said the forecast average skim milk powder price for the 2018 calendar year had risen seven per cent to $2655 a tonne from the original forecast in January of $2481 a tonne.
But the average cheese price was forecast to be $4935 a tonne, 1.1 per cent lower than 2017.
This was due to more milk being used for cheese production particularly in Europe. Cheese export volume was likely to be comparable to last year, the bank said.
“Overall, Australian dairy producers should expect to see more stable returns over the medium term,” Mr Dundon said.