Dairy riding the wave of high commodity prices

At the halfway point of 2021, Australian agriculture appears set for another strong year with the NAB Rural Commodities Index up 2.5 per cent month-on-month in May to now be 6.2 per cent above the same time in 2020.

NAB’s June Rural Commodities Wrap, released on June 22, reports dairy farmers are among the producers enjoying the flow-on effects of good prices and strong seasonal conditions across many parts of the country.

NAB agribusiness economist Phin Ziebell said dairy opening prices reflected hot competition among dairy processors.

“Opening prices have been announced, and in the case of Saputo and Fonterra Australia, already stepped up,” Mr Ziebell said.

“Saputo opened at $6.65/kg MS and stepped up to $6.85/kg MS three days later. Fonterra Australia opened at $6.55/kg MS but has likewise stepped up to $6.85/kg MS to stay competitive.

“Smaller processors are offering comparable opening prices.

“Bega opened at $6.80/kg MS for southern Victorian suppliers and $7/kg MS for northern Victorian suppliers, while Bulla is in the $6.40-$6.90/kg MS range. ACM is at $6.85/kg MS but offering northern suppliers $7/kg MS.”

Global Dairy Trade (GDT) auction results have been flat to lower in US dollar terms since April this year, but overall, producers should be pleased with the trajectory of both GDT and local indicators, according to Mr Ziebell.

“Wholesale prices are now at a level in Australian dollar terms to support farm gate prices in the high $6/kg MS range, representing a strong return for producers,” he said.

“A key pressure for the industry has been elevated feed and in northern Victoria, water costs, however, both have now eased substantially over the last 18 months.

“While we see feed costs having essentially bottomed out, a return to 2018-19 levels is highly unlikely this year.

“Milk flow has likewise stabilised and the latest forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences put production just shy of nine billion litres in 2021-22.”