COMPETITION for milk is heating up, with the nation's largest dairy processor Murray Goulburn last week announcing an opening farmgate price of $5.60 a kilogram milk solids - a 24 per cent increase on last year and a record for the cooperative.
The rise is a relief for dairyfarmers battling high feed costs, poor seasonal conditions and a low milk price.
The initial price includes an option to take-up the pre-payment of a special step-up of 9 cents/kg butterfat and19c/kg protein, giving up to $31 million in cashflow to suppliers on July 15.
The co-op is forecasting a full-year price of $5.80/kgMS to $6/kgMS, equivalent to about 45c/litre.
MG managing director Gary Helou said the price reflected the positive impacts of the $100m operational savings, higher world dairy ingredients prices, and a softening $A.
"Demand for dairy food remains strong in key markets in Asia and the Middle East, with growth in traded global dairy market expected to exceed 5pc per annum," he said.
"On the other hand, global supply of dairy products was hampered by negative seasonal conditions in key exporting regions, including New Zealand, Australia and Europe.
"Growth in global traded milk supply this year is expected be less than 1pc, or half the previously forecast 2pc.
"This shift in the balance between supply and demand has resulted in the recent surge of international dairy prices."
Mr Helou said although prices are expected to stay strong during the next six months, factors like growth in supply, foreign exchange and continued strong demand would shape prices during the second half of the year.
MG's announcement comes after United Dairy Power managing director Tony Esposito told farmers at a supplier meeting in Murray Bridge recently that the company was likely to open at about $5.85/kgMS-plus in the next month.
South Australian Dairyfarmers Association president David Basham said he was surprised MG announced its price almost a month earlier than previous years, but together with UDP's indication of a strong price, it would be welcome news for SA farmers.
"It's important farmers get a good return this year to try and repay some debt after the hard season we've been through as well as low milk prices we've been through," he said.
"But we need quite a number of good years to get the industry back on track and get confidence back in the industry.
"If this is just a one-year higher price, there will be no confidence in the industry and people will still be looking to find their exit strategy."
It was likely that the MG move would trigger a string of opening price announcements from other processors.
"To be competitive, those other processors are going to have to be in the same ballpark as MG and UDP, as both are similar in the way their price structures work," he said.
*Full report in Stock Journal, June 13 issue, 2013.