Lower-than-expected supply growth in European and US milk markets have set the tone for a more bullish market for Australia’s producers, Rabobank has said.
The agribusiness bank says in its latest Dairy Quarterly report a full-year farmgate price of A$6.40 per kilogram of milk solids is within reach in FY19, thanks to low processor stock levels and seasonally-low milk flows.
“Most commodity prices are now trading between 10% and 20% higher than the start of the year,” Rabobank senior dairy analyst Michael Harvey said.
“Notably, there are healthy premiums for Oceania-origin cheese and skim milk powder, which will be an ongoing feature – at least until the new selling seasons get underway in the southern hemisphere from August onwards.”
Harvey said the high A$6.40/kgMS price forecast was based on Rabobank’s ‘base’ forecast for South Australia of A$5.90/kgMS, which excludes premiums, and uses a spot currency rate of 0.76.
The base price is an upward revision from the initial forecast for the season of A$5.40/kgMS.
“The less-than-expected growth in supply out of Europe and the US has driven the more bullish outlook for prices,” Harvey said, “as well as the expectation the Australian dollar could ease slightly to 0.74 in the second-half of the year.”
Despite the positive price signals, Harvey suggested Australian dairy farmers could suffer a bit from higher supplementary feed costs, however.
“After a dry start to autumn, many production regions received a timely break in May,” he said. “While this is expected to underpin production in the southern regions, there are challenges to maintain this growth momentum, as soil moisture deficits persist in a number of areas, and the latest BoM outlook suggests warmer and drier-than-average conditions during winter.”