Dairy prices kick up: Global cheese prices up 12.5% in six weeks

Global dairy prices appear to have finally bottomed out and are back on the rise, but consumer demand remains soft.

Cost-of-living pressures are forcing Australian households to buy cheaper supermarket house-branded and bulk cheese.

Global Dairy Trade cheese prices have made their third consecutive gain at the fortnightly New Zealand auction, climbing back from a March low of $US4052 a tonne to reach $US4561/t overnight.

The 12.5 per cent gain will be welcomed by Australian dairy farmers, as they await news on 2023-24 opening season prices from processors.

But most analysts have already warned farmgate prices are unlikely to be maintainedat the current average of about $9.60 a kilogram milk solids, given global dairy prices across the board are still 36 per cent down on the April peak of last year.

The GDT price for cheese, Australia’s biggest dairy export, is still down 30 per cent on last year’s $US6472/t peak, while the nation’s second-ranked export – skim milk powder – is almost 40 per cent off the 2022 peak.

While only 36 per cent of Australian milk goes into exports, another 36 per cent goes into domestically consumed cheese and other products, which Dairy Australia’s last In Focus report states “must be competitively priced against imports”.

“Over 70 per cent of milk produced in Australia is exposed to global dairy prices, while the remainder is consumed domestically as liquid drinking milk,” it stated.

Milk2Market exchange commercial development manager Richard Lange said he still expected the 2023-24 price to end up at about $9/kgMS, but urged processors to give farmers plenty of warning.

“It’s right for them (processors) to give early signals, to allow farmers to budget,” Mr Lange said. “Processors need to come back with a price that reflects the market, which is obviously lower than last year.”

Rabobank analyst Michael Harvey said the latest kick-up in cheese prices was good news and “a sign we’re at the bottom of the cycle, because there was always a risk it was going lower”.

But again he cautioned inflation had softened demand for dairy across the globe, as consumers tightened their belts.

Even in Europe, where dairy demand is fairly inelastic, Mr Harvey said high energy prices and the war in Ukraine had forced consumers to cut back.

“(Global) demand is soft, so we’re not going to see a quick recovery,” he said.

Within Australia, both Coles and Woolworths are reporting high inflation is shifting consumer demand to cheaper house-branded and bulk products.

In releasing its third-quarter sales results this week, Woolworths chief executive Brad Banducci said “value-conscious consumers are becoming more thoughtful about their discretionary spend, trading into more affordable options, such as our own brand, and looking for additional ways to save”.

Woolworths recorded 9.1 per cent growth in its own brand sales, while Coles recorded an 11.4 per cent surge in its house-branded lines.