Insights August 2023

Commodity Overview

• Australian milk production for the 2022/23 season is likely to sit at 8 billion litres, the lowest domestic pool in almost 30 years.
• Global dairy prices continue to fall as lack of Chinese demand leads to sufficient global supply.
• The ACCC will investigate the implications for competition with regard to Coles’ buyout of Saputo processing plants.

Australian milk production in May was a 1.6 per cent increase on last year. This is the first time in 18 months that monthly production has been up year-on-year. Despite this, full season Australian milk production is still set to be the lowest in almost 30 years. With June production data still to come in, 2022/23 season production is likely to finish just above 8 billion litres. New season milk production is forecast to remain flat to slightly lower at around 7.9 to 8.0 billion litres.

Global dairy prices have fallen in the past six trading events. The Global Dairy Trade Index is now sitting 16 per cent below the five-year average. Chinese demand remains largely absent from global purchasing. Without Chinese demand, there is a relative oversupply for other buyers and little impetus for a lift in global prices. When China does return to buying it is unlikely to cause an instant surge in global prices. Carryover domestic supply and pressures from inflation and costs of living will likely see a stabilisation and gradual increase.

Australian farmgate milk prices have settled to average around $9.36/Kg MS from the major processors. Prices range from around $9.20/Kg MS to over $10/Kg MS from various buyers. This is in line with historic highs reached last season. While there is sufficient supply to meet global demand, the same cannot be said of the Australian domestic market. Competition to secure local supply saw processors quickly lift offers to similar highs seen last season. While global prices are slumping, Australian domestic prices are at record highs. This disconnect means step-ups in farmgate prices are unlikely in coming months.

The Australian Competition and Consumer Commission (ACCC) has announced it will investigate Coles' plan to buy two of Saputo's milk processing plants. Farmers are concerned about Coles' ability to dictate farmgate prices by owning the entire supply chain from farmgate to retail. It could also reduce competition should Saputo exit the fresh milk market in New South Wales. Coles have defended their intentions, stating that Coles already acquire around 80 per cent of the volumes provided by those facilities. If the ACCC believes the deal could result in a risk of lessened competition it could oppose the deal. That being the case, the matter would likely end up in the federal court.

Sources: Global Dairy Trade, Dairy Australia