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Insights April 2023

12 April 2023 |Dairy

Insights April 2023

12 April 2023 |Dairy
The April update provides an analysis of production and pricing trends for Australian dairy producers.

Commodity overview

  • Sales of processing facilities highlight ongoing concerns over Australia’s declining milk production.
  • Global dairy prices continue to fall as buyers are able to source required supply without pushing prices higher.
  • Processors face competing forces of low domestic supply and declining global prices when setting opening farmgate prices.

The big news in dairy is Saputo's sale to Coles of two milk processing facilities in Laverton, Victoria and Erskine Park, New South Wales. The retreat of larger processors is a result of Australia's long term declining milk production. Large processors will allocate supply to end products - skim milk powder, whole milk powder, cheese or butter. The allocation is generally based on contractual arrangements and profitability in the export market. Low local supply is driving up farmgate milk prices, but global dairy prices continue to decline. In this scenario, profitability of processing various end products, particularly for export, is becoming more difficult. Coles’ use of the plants will be predominantly for milk for the domestic market. This means export pricing and competition won't have as much of an impact on profitability. Coles are understood to have offered long term (three to five year) contracts at as much as $12-$12.50/kg MS. This is an effort to secure supply in order to stabilise retail prices. It does raise the question of how much control of a vertically integrated supply chain is too much.

Australian milk production continued to decline with a 20 per cent fall from January. February production was down 5.3 per cent on last year. This puts season to date production 6.5 per cent below last season, and 8.5 per cent below average. While the worst of flood affected production is behind us, Australian milk production is still on track to be around 8 billion litres. This is compared to average of around 8.8 billion litres. It was only eight years ago that Australian milk production was pushing 10 billion litres.

Global dairy prices continue to freefall, declining seven per cent in the latest two Global Dairy Trade events. This puts the Global Dairy Index at its lowest since November 2020. Current prices are down 39 per cent year-on-year and 12.3 per cent below average. Cheddar was the only category to gain value in the most recent trade event lifting two per cent. However, this comes after three consecutive sessions of losses to be down 16.5 per cent from last month.

New season farmgate milk prices will be announced in the coming months. Processors face the competing forces of low domestic supply versus declining global prices. We still anticipate new season farmgate milk prices to be well above average as buyers will have to compete to secure supply. But easing global prices and increased export competition will limit upside. We are unlikely to see opening prices at current high levels.


Sources: Global Dairy Trade, Dairy Australia

Any advice provided in this update is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation. Please read the applicable Product Disclosure Statement(s) on our website ( before acquiring any product described in this update.

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