News

Challenging conditions hinder growth

By Dairy News

THE GLOBAL dairy market looks set to remain firm through mid-2020, as the outlook for demand growth is more than enough to absorb the modest volumes of increasing milk flows, according to Rabobank’s latest global Dairy Quarterly report.

The report says that despite higher farmgate milk prices, “dairy farmers in most export regions have struggled to convert improved market conditions to production growth”, with production across the Big 7 exporters (the US, the EU, New Zealand, Australia, Brazil, Argentina and Uruguay) expected to increase by just 0.4 per cent in Q4 2019 and 0.8 per cent in early 2020.

Several constraints have prevented supply growth, according to the report, with a warm summer in China and Northern Europe partially to blame. But it is constraints in respective regional markets that have limited, and will continue to limit, farm-level expansions and keep the broader market firm, with the report citing factors such as rising costs of production, lower confidence, capacity constraints and environmental regulations.

On the demand side, the report says, there is a noticeable slowing of global economic activity and consumer confidence is waning.

Latest data for the 2018–19 season shows Australian milk production falling by 5.7 per cent, a loss of 530 million litres — with falls recorded across all regions.

In 2019–20, Rabobank senior dairy analyst Michael Harvey says Rabobank is forecasting national milk production to decline by about 3 per cent.

“This takes into account a slow rebuild of the herd and the constraints facing many producers in light of high feed and water costs,” Mr Harvey says. “While there is regional variance, with seasonal conditions reasonably favourable in Gippsland, south-western Victoria and Tasmania, the brunt of the decline in milk production is expected to occur in the Murray Irrigation District where opening water allocations are low.”

Despite seasonal challenges, Mr Harvey says “record-high opening prices are on offer across the southern export region with reported weighted average prices ranging between AUD 6.80/kgMS and 7.20/kgMS, including supplementary payments”.

The bank, he says, has slightly trimmed its Australian milk price forecast for 2019–20 to AUD6.65/kgMS. “This reflects some weakness in the global butter price, which has come off its highs and is back around its normal trading range,” he says. It also assumes a spot currency of USD 0.67.

Mr Harvey says southern export milk prices are currently sitting above this level, supported by intense competition between processors for available milk supply and variance in dairy companies’ product mixes.