Rabobank projects strong 2021-22 but processors quell further step ups this season

Australian Dairy Products Federation president Grant Crothers is circumspect about further 2020-21 step ups, despite next season’s rosy outlook.

Strong prices are projected at the southern farmgate in 2021-22. PICTURE: ZOE PHILLIPS

SOUTHERN Australia’s dairy farmers are set for a blockbuster 2021-22 although the nation’s processor group has quelled hopes of further step ups this season.

Rabobank’s milk price forecast has set expectations at the farmgate of an indicative weighted average of $6.65/kg milk solids for next season.

However, at a recent forum, Australian Dairy Products Federation president Grant Crothers was circumspect about further 2020-21 step ups, with three months of the current season left to play out.

Rabobank’s dairy analyst Michael Harvey said the $6.65/kg figure was in line with current season expectations.

“Price signals ahead of the 2021-22 season remain favourable with the upside and downside risks to the global outlook more balanced then they were this time last year,” he said.

“That said, while the pandemic-related uncertainty has subsided, it has certainly not disappeared.”

Rabobank said the Australian dairy sector was eyeing the prospect of a trifecta of profitable annual returns for dairy producers in the southern export region.

Using the Australian Dairy Plan target – at $1.50 EBIT/kg milk solids – as the profitability

measure, the report said Victorian farmer margins exceeded industry targets in 2019-20 and are expected to again in 2020-21.

And things are on track for a similarly strong result in 2021-22 in most

Australian dairying regions.

“If successful, it would be the first time since benchmarking began in 2006-07 that three consecutive years have exceeded industry targets,” Mr Harvey said.

“The elevated outlook for the milk price is key to profitability but also favourable seasonal conditions and livestock trading conditions.”

As part of the mandatory dairy code of conduct introduced by the Federal Government last year, all processors are compelled to publicly report opening prices on June 1 — a full month out from the start of the new financial year.

Speaking to a recent forum hosted by the Australian Dairy Conference, Mr Crothers said processors buffeted farmers from market volatility.

“We are a minnow in a very big food market and currency is an ingredient that moves the value around enormously,” Mr Crothers said.

“GDT (Global Dairy Trade index) as a US dollar derivative is an index, it is not the index.

“I think Barry’s (Irvin) comment about processors protecting dairy farmers from the extreme volatility of covid also stands for the extreme volatility of GDT.

“(As well as) the extreme volatility you’ve seen in New Zealand on price. I think back in 2016, it dropped below $4.00/kg milk solids, you know — $3.80, $3.90.”

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