Season opens with 7 per cent milk price cut: Forecast to fall below $9kg of milk solids

The 2023-24 opening farmgate milk price is set to be at least 7 per cent down after Bulla sets the benchmark.

United Dairyfarmers of Victoria president Mark Billing warns a 7 per cent drop in milk price is unsustainable and drive farmers out of the industry, shrinking supply.

Opening 2023-24 milk prices are set to be at least 7 per cent down on this season, cutting the southern-region weighted average from $9.60 a kilogram of milk solids to $8.93kgMS.

Bulla Dairy Foods set the new benchmark last week, announcing an opening price that its chief executive Allan Hood said was 60ckgMS down on the current season’s price across all production bands, equivalent to a 7 per cent cut.

United Dairyfarmers of Victoria president Mark Billing warned such a drop across the board was unsustainable and would lead to more farmers leaving the industry, shrinking the milk pool.

“They (processors) have made massive investments in infrastructure, (but) if they don’t also invest in the pool and price they won’t have the milk to put through it,” Mr Billing said.

Dairy Australia’s season-to-date statistics show production has already slumped by 433 million litres to the end of March, equivalent to losing almost 2020 farmers.

That loss will bring national production down to less than 8 billion litres, intensifying competition for raw milk among processors battling for supply.

But the Australian Dairy Products Federation issued a statement last week warning its members, including Fonterra, Saputo and Bega, were struggling to sustain what it called the current season’s “unprecedented record farmgate milk prices”.

“As of 15 May 2023 the Oceania (NZ export) Commodity Milk Value (CMV)2 – a forward milk price indicator of how the global market may affect dairy product prices in coming months – has dropped around 30 per cent to $6.49kgMS since 6 June 2022 ($9.15kgMS), compared to the weighted average announced southern region farmgate milk price for the 2022-23 season of $9.60kgMS,” the ADPF stated.

“The current 20 per cent higher farmgate milk prices being paid, in Australia compared to New Zealand, places Australia at a competitive disadvantage not only in export markets but it is also being reflected on our supermarket shelves with New Zealand made cheese and butter priced significantly cheaper than Australian made products.”

Yet Dairy Australia statistics show local processors have still been able to gain a premium in global markets, lifting the value of their exports by 3.4 per cent to $2.51 billion in the first eight months of this season.

The latest Australian Bureau of Statistics’ CPI report shows processors have also shared in a massive surge in the price of dairy products on supermarket shelves, which have risen by almost triple the national inflation rate of 7 per cent.

ABS data shows cheese prices are up 20.6 per cent in the 12 months to the end of March, drinking milk up 21.1 per cent, while ice cream and other dairy products are up 16.3 per cent.

However ADPF executive chairman John Williams said processors were still “contending with low volume growth, exorbitant overhead and input costs (inclusive of energy, transport and raw milk), a tough and highly competitive domestic trading environment, and rapid growth in import competition”.

“The current operating conditions for manufacturers are tough and need to be countered so that Australian regional jobs and economies are not hit hard if processors are forced to rationalise their operations,” he said.

Saputo has already closed its Maffra factory and cut back operations at its Leongatha and Mil-Lel factories, while Bega announced in February it would cease manufacturing at its Canberra plant.

“Without an increase in raw milk, it is expected that some processors will need to continue to rationalise their operations, impacting jobs, local economies and farmers who may no longer benefit from these assets in their region – realities we have witnessed in the past six months.”

ADPF also took a swipe at the mandatory dairy code, which since it came into effect in 2020 has forced them to make their milk supply agreements and prices for the coming season publicly available by June 1 each year.

“This requirement is unique to Australia – no other commodity market in the world requires processors to announce farmgate milk prices 13 months out from the seasons end, risking processors viability in a market where the costs of Australian products are not competitive with imports,” ADPF stated.

But eastAUSmilk chief executive Eric Danzi said: “It’s strange to me why the processors would put out such a negative release, when there’s no chance of the code disappearing.

“Most farmers see it as a positive, with Queensland and NSW farmers wanting to see it strengthened,” Mr Danzi said.

Mr Billing said for many years farmers bore all the price risk. “The code has enabled us to share the risk, especially if there’s a (price) dip mid-season,” he said.