Milk prices to fall: 2023-24 opening season milk price set to soften

The global collapse in dairy prices is set to flow through to Australia with farmgate prices expected to take a hit.

Dairy farming families can expect to see milk prices fall back, after a 40 per cent slump in global commodity prices, with little sign of recovery.

Opening season farmgate milk prices are set to soften in the wake of a global dairy commodities’ slump, which futures markets are betting will remain low for at least another year.

Cheese, powder and butter prices have tumbled on the New Zealand global dairy auction, where a tonne of skim milk powder that traded for $US4599 last April is now selling for $US2769, a 40 per cent drop.

There’s also no sign of recovery on the Singapore Exchange’s futures market, which shows bids for butter, anhydrous milk fat, skim and whole milk powders remain almost flat through to the end of the 2023-24 season.

August 2024 bids for skim milk powder on the SGX were $US3200a tonne, against a March price of $US2830/t, a rise of 13 per cent and nowhere near the heady $US4500 high of last year.

Bids for butter show the market expects prices may even fall slightly, from the current $US5040/t to $US4980/t.

It’s a similar story on the European and US futures exchanges, where only modest price rises are expected.

The US Department of Agriculture’s 2023 outlook is for slightly lower production, while lower global prices and domestic demand mean its “all-milk price estimate” will drop from $US25.56 per hundred weight to $US20.70 per cwt.

RaboBank dairy and consumer foods analyst Michael Harvey said he expected some softening of Australian 2023-24 farmgate milk prices, especially in southeast Australia’s more export exposed regions.

“We expect milk prices to come off,” Mr Harvey said. “But given where milk prices were, there will be greater regional variation and across (milk processing) companies.”

Retail giant Coles went out in January to lock in 400 million litres from farmers, offering two to three year contracts at a premium of $10/kgMS for year-round production.

But the three majors Saputo, Fonterra and Bega are yet to indicate what they may offer in 2023-24.

New Zealand dairy giant Fonterra has already responded to the downturn by cutting Kiwi farmers’ forecast milk price for this season, from a midpoint of $NZ9/kgMS to $NZ8.50/kgMS.

Australian dairy farmers well remember the flow-on effects of Fonterra cutting its Kiwi farmgate prices by $NZ1.40 in August 2015, from a forecast $NZ5.25/kgMS to $NZ3.85/kgMS, in response to the last global downturn.

The now defunct Murray Goulburn co-operative told its Australian suppliers it expected to be able to maintain its opening farmgate price of $5.60/kgmMS for the remainder of the season.

But on April 27, 2016 the co-operative announced a retrospective clawback of $183 million from suppliers, equating to about 73c/kgMS.

By May, Fonterra Australia had also announced its own clawback

Mr Harvey said the latest global price slump was set to flow through to the Australian market, but would be offset to some degree by strong domestic competition from processors for farmers’ milk.

“Where this (dairy commodity) cycle goes hangs on China,” he said.

Freshagenda dairy analyst Steve Spencer said his analysis of futures markets and market fundamentals showed that “from here on, things firm up”, as China’s Covid restrictions eased, boosting mobility and dairy consumption.

Mr Spencer said South East Asian buyers were also returning to the market to restock, after avoiding last year’s price spike, while at the same time US and European production slowed and inventories wound down.

But Mr Harvey said there were still short-term risks, given Chinese consumer demand was weak.

He said China’s food services sector demand was well below pre-pandemic levels, with Yum China and Starbucks chains reporting sales were down 20 to 30 per cent.

He said China was not buying anywhere near the record imports of 2020 and 2021, still had stocks on hand, and had been lifting domestic milk production by two billion litres a year since 2018.

Milk2Market commercial manager Richard Lange said it was better to be upfront on softening prices, so that farmers could adjust their budgets for the new season.

“The softening market is real, but how much of that is transferred into the opening price we don’t know,” Mr Lange said.

He said the big question was how much processor competition for a dwindling national milk pool would be offset by lower commodity prices.