With global prices expected to improve later this year and both companies looking to shore up more supplies, a new report for Rabobank says farmers can look forward to a profitable season in 2018-2019.
Report author, Rabobank senior dairy analyst Michael Harvey, said competitive pressure for milk supply was likely to intensify next season after Saputo got the nod to buy Murray Goulburn.
He said this would translate into higher premiums to farmers and help compensate for lower commodity prices.
“In the global market, while risks loom in the near term and this is likely to see dairy companies take a conservative approach when opening their prices for the 2018-2019 season, the prospects for a gradual tightening in global dairy markets is bright,” he said.
While the bank is forecasting a base farmgate price of $5.40 per kilogram of milk solids in 2018-2019 it says competition for milk is likely to boost value-add payments.
Rabobank expects average farmgate prices of 5.40/kgMS to $5.90/kgMS for 2018-2019.
Tasmanian Farmers and Graziers Association dairy council chairman Andrew Lester said while farmers would welcome more competition, he was urging some caution.
“Things are certainly looking more positive than they were earlier in the piece and it would be good to see some higher prices,” he said.
“The one thing I‘d say is when companies are paying more to get supply and that’s not reflecting what the market is doing, there’s always a risk in that, so farmers do need to be cautious.”
The report says the Australian dairy sector has made positive strides this season.
“While the industry has a structurally lower dairy herd, there are enough of the key ingredients in place to support milk production growth for a second consecutive season.”
The bank is forecasting domestic production to lift by 2.7 per cent in 2018-2019 to deliver an additional 170 million litres of milk to the market.
This follows the boost of 3.2 per cent, or 390 million litres, in the current season.
Given the increase in Australian supply and the repositioning of the milk pool, the report says a big battle looms.
“At the frontline are the two large international companies butting heads over milk supply,” Mr Harvey said.
He said Saputo was looking win back supply while Fonterra mapped out expansion.
Mr Harvey said Saputo’s acquisition of MG, pending approval by the Foreign Investment Review Board, was set to “fundamentally transform” the ownership of the milk-supply chain.
He said with MG’s excess capacity of more than 1 billion litres, Saputo would be looking to win back that lost supply while other processors would fight to retain their suppliers.
Mr Harvey 900 million litres of capacity was to be built over the next two years, following 1 billion litres of new capacity in the past two seasons.
Fonterra Australia said ed this week Tasmanian farmers had the option to sign up for its fixed base milk price incentive, where they can lock in a set price for up to 70 per cent of the season’s milk.
By: KAROLIN MACGREGOR
Source: The Weekly Times