The Australian Bureau of Agricultural and Resource Economics and Sciences has forecast the farm gate milk price in Australia to average 47.9 cents per litre in 2020-21, down nine per cent from high levels in 2019-20. This is above the five-year average of 46.9¢/litre.
The big processors are offering about $6.20/kg of milk solids to $6.30/kg MS for northern Victoria suppliers this spring, depending on the supply curve, while smaller companies will go up to about $7/kg MS, according to a Milk2Market report.
Milk2 Market commercial development manager Richard Lange said it appeared the major processors had decided to start the season, the first operating under the dairy code of conduct, with the maximum sustainable price.
The downside to this strategy was the knowledge that step-ups may not eventuate in spring due to the international commodity prices and the foreign exchange rate.
“I think suppliers would rather have the money up-front at the start of the season than wait for it to be delivered down the track,” Mr Lange said.
He said in recent years the processors had been more aggressive in opening stronger.
Market conditions were different last year and average prices were around $7/kg MS, but conditions this year dictated a price closer to $6.
With the appreciation of the foreign exchange rate of between 10 and 15 per cent and the softening in demand from key markets, processors were in a squeeze.
Having said that, Mr Lange said there were some specialty processors offering better prices and he encouraged dairy farmers to compare prices.
“Smaller players tend to want flatter supply curves, so you have to take that into account and adjust any changes in input costs.”
The Australian Dairy Export Index — which looks at milk powder, cheese and butter exports — has been declining since January this year.
On Friday, November 27, Fonterra advised its Austarlian suppliers there was no step-up coming, following the bi-monthly price review.
The company is sticking to its average farmgate milk price at $6.40/kg milk solids and had narrowed its forecast closing range to $6.40 to $6.55.
The company is looking towards significant improvement in market conditions to achieve the top end of the range but has seen softness in demand from key categories such as Nutritionals.
The other significant factory, foreign exchange rate has strengthened since Fonterra announced its opening price in June, which has offset any gains in commodity prices.
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