A dairy report by National Australia Bank has cautioned against staking too much on a recent increase in the Global Dairy Trade (GDT) price index.
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The latest NAB Dairy In Focus report said the Global Dairy Trade (GDT) price index was pushed 4.2 per cent higher by slowing supply growth but the flow-on benefits in Australia were tempered by tough seasonal conditions and associated cost pressures.
NAB’s Australian dairy export price index rose 10.2 per cent from December 2018 to January 2019, in what was the biggest monthly gain since 2016.
NAB’s Phin Ziebell said the increase in the GDT index was largely attributable to slowing supply and depleted European stocks.
But he said NAB was not forecasting any major gains for global prices over the coming months.
“The price is being driven by reduced supply growth and a sharp rundown of the European Union’s skim milk powder stockpile. The United States and New Zealand are also close to the top of their five-year production ranges,” Mr Ziebell said.
“While these price increases are certainly welcome, our forecasts aren’t showing any major gains for global prices in USD terms over the coming months.”
The report shows that farmgate prices have also risen, with Saputo and Fonterra announcing step-ups late last year.
“Saputo’s southern region price rose in September to $5.95/kgms and Fonterra’s rose in October to $5.98/kgms,” he said.
Cost pressures have been intense for many producers, for both fuel and fertiliser, and especially for feed and water amid the extensive drought conditions across much of Australia.
“For Australia’s major dairy regions, seasonal conditions have been mixed to poor. Tasmania saw closer to average rainfall, while rain in NSW, south-west Victoria and south-east South Australia was below average,” he said.
“Northern Victoria and southern New South Wales irrigated dairy regions have had to face elevated water and grain prices as a result of dry conditions.
“The NAB feed grain price index rose an enormous 74 per cent during 2018, and we anticipate that prices will remain elevated over coming months.
“Water entitlement prices are also trending higher, with temporary water licences ranging from $300 to $500 in recent times,” he said.
The report shows that petrol prices have come back from record levels in November by around 24 per cent, reflecting a decline in crude oil price.
NAB’s fertiliser index finished 2018 almost 32 per cent higher than 2017.
“Electricity prices also remain a concern for the dairy industry and while they did not increase considerably in 2018, the longer-term trend is more acute, having nearly doubled by some measures over the past 10 years,” he said.
Australian milk production levels are tracking close to 2016 levels, near the bottom of their five-year range.
“Data from Dairy Australia indicates that Australian milk production to October is down 4.0 per cent.
“When we look at year on year data for October, there was an even bigger decline of 5.7 per cent.
“Victoria, which accounts for two-thirds of Australia’s milk production, saw a 7.1 per cent drop in production compared to 2018,” he said.
“The latest ABARES forecast also suggests that annual production could drop by 8.9 billion litres to its lowest level since 1995-1996.”
NAB’s outlook for the AUD and interest rates remains stable, with the AUD set to sit in the USD70–75c range, and official rates are expected to remain on hold until the second half of 2020.
