International dairy prices below Australian farmgate, says Bega boss

International dairy prices fell overnight, exacerbating a months-long trend. Here’s what it means at the Australian farmgate.

International dairy prices continued to slide overnight, setting the scene for a softer start to the 2023-24 financial year at Australia’s farmgate.

The fortnightly Global Dairy Trade index dropped by 1.5 per cent overall, slicing into gains made earlier this month.

Whole milk powder, which peaked in March 2022 at US$4757 (A$6933) per megatonne, drove the overall index down, to an average of US$3264 (A$4757) per megatonne.

Skim milk powder and anhydrous milk fat both fell by more than two per cent in overnight trade, to sit at US$2769 (A$4035) and US$5447 (A$7938) per megatonne respectively.

Bega Cheese executive chairman Barry Irvin said while there was a significant gap between international prices and farmgate offerings domestically, it was too early to forecast farmgate figures for the 2023-24 financial year.

“Australia is a little bit of an outlier as far as (international) milk prices are concerned,” Mr Irvin said.

“Interestingly, the global markets have almost corrected completely and they are about 30 per cent down on what they were this time last year.

“My message to the conference was: It is important to have an understanding about price trends globally when you’re making decisions about your business locally.”

Bega Cheese executive chairman Barry Irvin.

Under the federal government’s mandatory dairy code of conduct, all processors have to publish their opening prices on their respective websites by June 1.

Last year, many processors started offering initial price guides as early as March as milk supply dried up across Victoria.

Australia’s big three processors — Fonterra, Saputo along with Bega — all eventually pushed past the $9 per kilo milk solids mark by July 2022, confounding expectations of between $7 and $7.50 per kilo milk solids.

“In terms of opening prices for next (financial) year, in February, as always it’s too early to tell,” Mr Irvin said.

While the GDT index softened this week, Westpac agri-economist Michael Gordon said the medium term trend was positive for dairy exporters.

He also noted the impact of New Zealand’s recent floods on dairy output across the Tasman.

“Over the first half of this year, we expect that rebounding Chinese dairy demand will lead global dairy prices higher,” Mr Gordon said.

“(The New Zealand government) has indicated that the total cost of the floods could be in the vicinity of $13 billion.

“That would make it New Zealand’s second-costliest natural disaster, following the Canterbury earthquakes in 2010 and 2011.”