Insights August 2021
Insights August 2021
- Step-ups to opening milk prices saw the average southern milk price increase 3.8 per cent from initial announcements.
- Good rainfall will drive a modest increase in Australian milk production in 2021/22.
- Global fundamentals remain favourable as demand growth is likely to outpace supply growth.
Opening milk prices for 2021/22 have lifted from what processors first announced. Step-ups have caused the average milk price from major southern processors rise to $6.98/kg MS, a 3.8 per cent increase from initial announcements. Price increases were driven by strong competition among processors to secure supply.
Australian milk production continues to show only modest growth despite good seasonal conditions. Milk production for the season to May was 0.8 per cent higher than 2019/20 but remained below the 5-year average by 1.7 per cent. Supply is expected to remain relatively flat in the 2021/22 season with Dairy Australia forecasting growth of only two per cent. Growth will be driven by good conditions heading into spring and a favourable rainfall outlook for the coming three months. However, production growth may be limited by businesses seeking to consolidate rather than grow. In addition, high cattle and land prices are also slowing the expansion of herds and production.
Global dairy prices softened in July. Uncertainty about the global COVID-19 recovery weighed on demand and ultimately weakened prices. The average skim milk powder price in July declined 6.6 per cent month-on-month. Strong demand from China helped keep prices 26.6 per cent above the 10-year average. China has been the primary driver of stronger skim milk powder demand in the first half of 2021. Australia has exported 107 per cent more skim milk powder to China in the year to June compared to 2020. Cheddar prices also declined in July with the monthly average down 4.4 per cent from June. The outlook for global dairy prices remains optimistic. Global demand growth is expected to outpace modest supply growth in major exporters.
Source: Global Dairy Trade