In its report last week, ABARES predicted dairy prices would average between 2 and 7 per cent higher in “real terms” in 2021-22 than this season.
Cheese and SMP would be the exceptions, with the former projected to remain 9 per cent less than the 10-year average and the latter 33 per cent less than the 10-year average. The big improvers were predicted to be dairy fat products.
ABARES senior economist Peter Collins said the EU stockpile of SMP was the main reason the price of the commodity had fallen and the recovery was tipped to be “softer”.
“There’s a big supply waiting to go on to the market,” he said.
Even after it lifts its trade emrbago — tipped to be the end of this year — Russia is not expected to help boost cheese demand, as it may not be able to afford or want a lot of the product.
The end of the trade embargo, which prevented imports of dairy products from Australia, EU, Canada and US since 2014, would come at a time when the Russian economy remained weak and the value of its currency low.
This would make imported produce more expensive, Mr Collins said.
He said the Russian Federation had traditionally been a large consumer of EU cheese. EU nations are ranked among some of the world’s highest volume cheese exporters.
According to Dairy Australia statistics, SMP accounted for about 25 per cent of Australia’s dairy exports, with cheese about 21 per cent from July 2015 to January 2016.
SMP represented about 20 per cent of exports from July last year to January, with cheese about the same.
The value of cheddar exports fell 3.2 per cent during this time, while exported other processed cheese fell 8 per cent. SMP value went down 19.3 per cent.
Dairy Australia analyst John Droppert agreed the shift toward dairy fats was structural — that it would hang around for the outlook period of five years —— but he did not necessarily expect to be such a differential between cheese and other products.
“With a structural change in favour of butter, it will leave a lot of surplus protein and in the meantime there’s a stockpile to get rid of,” he said.
“But if WMP was to outperform cheese by so much, maybe some would take more milk out of the cheese and put it into the WMP.”
“I don’t see any obvious reason for there to be such a divergence between product streams given the flexibility most exporters have to switch between streams.”