Rabobank have released its latest dairy report Australian Dairy – Let the big milk battle begin this week revealing the heavy clouds hanging over the global dairy market are expected to clear later this year, giving Australian producers a much needed profit boost.
Report author, Rabobank senior dairy analyst Michael Harvey said the competition for milk in Australia is set to intensify as the battle begins two global dairy giants, steering domestic producers towards a profitable 2018/19 year.
The report says as Saputo’s quest to win back milk supply begins and Fonterra maps out further capacity expansions, a tug of war for milk supplies could benefit Australian producers.
Mr Harvey said while smaller and newer dairy players are set to continue actively recruiting milk to secure their share of the milk pool, it will be these competitive pressures for milk supply, which are likely to intensify next season with Saputo’s acquisition of Murray Goulburn, that will translate into higher premiums being passed to farmers and help compensate for the lower commodity price.
“In the global market, while risks loom in the near-term and this is likely to see dairy companies take a conservative approach when opening their prices for the 2018/19 season, the prospects for a gradual tightening in global dairy markets is bright,” he said.
“The timing of the recovery is expected to favour Australia by taking place through our seasonal peak in production.”
He said based on Rabobank’s latest global commodity price forecast and assuming a spot currency rate of 0.77USD – the bank forecasts the global market to deliver a base farmgate milk price of $5.40AUD/kgMS in 2018/19 – down slightly from $5.60AUD/kgMS.
“However greater competition for milk is likely to bring higher value-add payments to Australian producers – and above those evident this season – with Rabobank forecasting an annual average farmgate range across southern Australia of $5.40kgMS to $5.90AUD/kgMS in 2018/19,” Mr Harvey said.