Insights June 2020
Insights June 2020
- Farm gate milk prices for 2020-21 will be lower than 2019-20 down 7.3 per cent to an average of $6.34/kg MS however they remain at a favourable level in historical terms at decile 7.7.
- Global dairy trade prices continue to ease but there are signs of stability in powder prices, driven by demand from Asia.
There is a sense of optimism and confidence around opening farm gate milk prices for the 2020-21 season, particularly in the context of the past six months and the economic uncertainty facing markets. Based on announcements from major processors the minimum opening milk price in southern Australia will average out at approximately $6-6.40/kg MS, with a mid-point for the season of approximately $6.20-6.60/kg MS and early estimates of a closing price between $6.70-6.90/kg MS suggesting step-ups could occur later in the season. Opening prices are approximately 7.3 per cent lower than the $6.80/kg MS opening price of 2019-20 and approximately 8.8 per cent lower than the estimated average closing price of $6.95/kg MS. The reason for the decline is due to a combination of softer demand for dairy products both locally and overseas and the prospect of increasing supply this season due to a favourable autumn break. However, the decline in price has been tempered somewhat by strong competition from processors looking to secure milk in order to gain factory efficiencies for this season and into the future.
In historical terms an average mid-point of $6.46/kg MS ranks as a decile 7.8 over the past 10 years, which is favourable in a year where cost of production is likely to be lower, driven by pasture growth from rainfall and the prospect of cheaper hay and grain. This will likely lead to an increase in herd size and milk production in 2020-21 for most dairy regions.
In global markets, skim milk powder prices are showing signs of stabilising driven by an increase in demand from Asia after volume bottomed out in early in May. Average skim milk powder price in Australian dollar terms remains above year ago levels despite COVID-19 disruptions, highlighting robust demand and giving some confidence for the months ahead. In contrast cheddar prices have declined sharply, down 29.7 per cent since the beginning of May, despite maintaining prices up until April. This decline is mostly supply led as Europe and US production flows onto markets, the trend isn’t dissimilar to 2019 however the rate of decline has been higher suggesting a combination of softer demand and more milk production directed at cheese during 2020. It’s likely that prices will level out in the coming weeks as the market re-balances supply and demand.
Sources: Farmonline, Dairy Australia and Global Dairy Trade