Insights June 2023

Commodity overview

• Average new season farmgate milk prices opened at around $8.92/Kg MS, but swift step ups from major processors saw the average lift to around $9.01/Kg MS.
• Global dairy prices remain lacklustre as subdued global demand and continues to limit any sustained gains.
• Positive seasonal conditions are expected to result in 2023/24 Australian milk production of around 8-8.1 billion litres.

Processors left it to the last minute to announce opening farmgate prices on June 1. Initial opening prices averaged around $8.92/Kg MS, 6.6 per cent above last season's opening. But new season opening prices are a reduction of almost five per cent from 2022/23 closing prices. Producers expressed their disappointment with opening bids after hoping for at least $9/Kg MS. This resulted in quick step ups by Bega and Fonterra to the $9 mark to match Saputo's opening price. While jostling for market share from processors was expected, there is limited scope to how much further prices can lift.

The Global Dairy Trade (GDT) Index has softened over the last two trade auctions. With little in the way of change to global supply and demand, the GDT index is expected to sit around current levels. Minor fluctuations may be caused by opportunistic buying. With reference to global buying, China's absence from the market continues to drive lacklustre demand. In the most recent GDT event, whole and skim milk powders both declined as China works its way through stockpiles. Butter and cheddar lifted, but this was more seen as buyers filling immediate needs rather than an upwards trend.

Domestic production continues to lag with April production 5.1 per cent below the five-year average. Season-to-date production of 6.9 billion litres remains eight per cent behind the five-year average and is on track to reach around 8.1 billion litres in 2022/23. Positive seasonal conditions bode well for 2023/24 production forecasts. But this is expected to slow the trend of significant declines seen in the past few years rather than reverse it. As such, production is estimated to end up around 8-8.1 billion litres in the 2023/24 season.

With global dairy prices remaining subdued, there is limited appetite for processors to lift farmgate bids. Low domestic production has already seen processors step up to match competitors. While there may be some minor increases to come, it’s unlikely 2023/24 prices will reach last season's highs and will stabilise around the $9.00/Kg MS mark in the near term.

Sources: Global Dairy Trade, Dairy Australia