Opening dairy prices 2023-24: Farmers call for fair pricing

Farmers are concerned processors will use lowered international pricing as an excuse to cut opening prices below production costs.

Dairy processors are keeping their cards close to their chest as farmers anxiously await indications of the new season’s opening price.

International milk prices have been tumbling for months with the latest trading result sending shockwaves through the Australian sector.

The headline figure for the Global Dairy Trade index dropped nearly five per cent last week to its lowest point since November 2020.

Whole milk powder, which peaked in March 2022 at $US4757 ($A7026) per tonne, plunged 5.2 per cent to an average of $US3053 ($A4509) per tonne.

However, Australia’s milk pool has shrunk this season with dozens of farmers opting to leave the sector in the 2022-23 financial year while prices were at record highs.

United Dairyfarmers of Victoria president Mark Billing said the exodus would be exacerbated if processors didn’t come close to this year’s farmgate offerings.

“If you remember, the processors started really early with their opening prices last year,” he said. “Some of the smaller operators started with $7 to $8 per kilo (milk solids). That escalated quickly. By the June deadline, the processors were in a bidding war.

“That hasn’t happened yet but there’s still a shortage of supply out there. It’s not like there’s a flood of milk onto the market and processors are aware.”

South Australian Dairyfarmers Association president Robert Brokenshire said farmgate prices nationwide needed to be similar if not higher than the 2022-23 opening price.

“Yes, we have high farmgate prices at the moment but we also have high input costs. So the profit margin for farmers doesn’t amount to much,” he said.

“If you’re a young farmer with a mortgage, then interest rates are really eating into your income. Electricity prices are high, fuel costs are high.”

EastAUSdairy co-chief executive Shaughn Morgan said inflationary pressures were eroding profit margins for farmers in NSW and Queensland.

He said processors needed to keep farmgate prices high to prevent further shrinkage of the national milk pool.

“Over the past decade, Queensland has lost 270 dairy farms and NSW has lost 500. The national milk pool is around 8 billion litres and both Rabobank and Dairy Australia estimate further decline,” Mr Morgan said.

“There has been some discussion among processors about a so-called ‘price correction’ this coming season. But if opening prices are lower than what was offered last season, with growing input costs, we’ll see further shrinkage of the milk pool.”

The 2022-23 season provided some of the highest opening prices seen in Australian dairy. PICTURE: ZOE PHILLIPS

Across the board, dairy commodity prices have fallen by about 35 per cent since April last year, with Australia’s biggest export earners cheddar down 37 per cent and skim milk powder down 42 per cent.

Milk2Market chief executive Richard Lange said a $9 per kilo milk solids offering from processors was a possibility, although there was greater volatility in the milk market compared to this time last year.

“If you look at what was happening in March and April last year, it was the start of what became a bidding war,” Mr Lange said.

“There’s obviously less confidence out there and that’s a lot to do with the GDT. But that isn’t to say that opening prices around $9 (per kilo milk solids) isn’t out of the question.

“There’s a lot to play out between now and June but you’d assume processors will play it on the conservative side for the time being.”

Under the mandatory dairy code of conduct, processors are required to list an opening price on their websites by 2pm on June 1.

Processors then have flexibility to raise that opening figure over the month of June, ahead of the official start to the season on July 1.

Last year, several processors raised their opening offers during June then provided unprecedented ‘step ups’ in the first fortnight of July to attract new suppliers.

Mr Lange said his Milk2Market organisation will hold several dairy auctions in June and expects competition for milk to heat up closer to the season’s official start date.

The Weekly Times contacted Australia’s big three processors — Bega, Fonterra and Saputo.

Bega and Saputo did not respond by deadline.

Fonterra fresh source manager Matt Watt said: “We are keeping a close eye on the market and there is a lot to play out as we head into next season.

“We will continue to talk to our farmers about how the season is shaping up.”