Farmgate milk prices hit record but more room to rise amid fierce competition

Dairy farmers are being offered some of the highest milk prices on record. Processors are jostling for position in a race to secure supplies.

“If you look at it historically, we are getting some of the highest milk prices on record”, United Dairyfarmers of Victoria president Paul Mumford says. Picture: Zoe Phillips

Dairy processors are offering farmers some of the highest milk prices on record, as they jockey for position in the race to secure supplies in 2021-22.

Canadian dairy giant Saputo came out this week with an offer of $6.65 per kg of milk solids to southeast Australian farmers, up on last season’s $6.40/kgMS.

Home-owned rival Bega Cheese has put a weighted average offer on the table of $7/kgMS for northern Victorian and Riverina farmers, while offering those in the south $6.80/kgMS.

United Dairyfarmers of Victoria president Paul Mumford said: “if you look at it historically, we are getting some of the highest milk prices on record”.

New Zealand dairy giant Fonterra released its offering of $6.55/kgMS, to Australian farmers last month, with an estimated closing price range of $6.55 to $6.95 per kgMS.

But on Monday of this week a Fonterra spokeswoman told The Weekly Times “we’ll review our price again in June on the back of our domestic and export contracts being concluded and to ensure we remain competitive”.

In New Zealand Fonterra is offering its Kiwi farmers an opening price of A$6.80-$8.20/kgMS, with a midpoint of A$7.50/kgMS (NZ$8/kgMS), however the spokeswoman said the markets were “very different”.

Fonterra and other Australian processors still have plenty of room to lift their 2021-22 farmgate prices, given the Global Dairy Trade index has surged a massive 43 per cent in the past year, from 903 on June 2 last year to 1287 by the middle of last month.

However for months now Fonterra and other processor members of the Australian Dairy Products Federation have been arguing the appreciation of the Aussie dollar against the US greenback has undermined their ability to lift Australian farmgate prices.

Earlier this year Australian Dairy Products Federation president Grant Crothers argued “increases in the GDT Price Index are welcome, but due to being in USD do not necessarily translate into FMP, which is in AUD.”

Mr Crothers argued “the exchange rate between AUD and USD is a key ingredient in the value of raw milk”.

Yet a simple check on exchange rates show the Australian dollar was worth 68 US cents last June, rising to 77 US cents today — a rise of about 13 per cent.

Over that same period the GDT price of butter in US dollars rose 36 per cent, with cheese up 23 per cent and whole milk powder up 49 per cent.

About a third of Victorian farmers’ milk goes into export products.

One of major factors hampering local dairy processors is their own inefficiency, due to a legacy of ageing plants that are operating below capacity in the wake of declining milk production – from 10 billion litres in 2000 to about 8.8 billion today.

Burra Foods milk supply manager Peter Fort said that while the Gippsland processor was operating efficiently, there was fierce competition for milk as new players, such as Bulla and ACM moved in, to source supply from a secure and sustainable region.

“There’s a milk supply shortfall, so there’s capacity utilisation issues,” Mr Fort said. “Going forward there will be factories that are under-utilised that will go.”

Mr Mumford said the big shock was that farmers were still leaving the industry, despite good milk prices over the last couple of seasons.

“Farmers have seen one of the best (2020-21) seasons in their lives, but we’re only seeing tepid milk production,” Mr Mumford said. “I think farmers are tired of the uncertainty - whether it’s the weather, high fodder and water prices or labour costs.”

Dairy Australia’s latest production report shows 2020-21 year-to-date production to the end of March was only up 0.4 per cent in Victoria compared to 2019-20, with national growth of just 0.7 per cent.

High land prices have also meant prime dairy properties are being sold or turned over to beef production.

“Once this dairy country transitions to other commodities we will never get it back,” Mr Mumford said.

All milk processors had until 2pm yesterday to publish their minimum prices in milk supply agreements on their websites.

The prices on offer from other processors, who had already published their 2021-22 farmgate milk prices, before the deadline, were:

BULLA from $6.50 - $7/kgMS, with the addition of an extra price band for milk supply above 49 per cent milk supply ratio.

BURRA FOODS from $6.40 – $6.80/kgMS

NORCO is offering about 70 cents a litre to northern NSW and Queensland farmers, equivalent to about $9.90/kgMS.