Rabobank’s Michael Harvey, who addressed a meeting of south-west dairy farmers in Warrnambool this week, said the volatility of milk prices was caused not only by the quick shifts in demand and supply that occurred in the international market for dairy commodities.
It was also caused by geopolitical issues such as the retaliatory bans imposed in recent years on dairy imports by Russia in response to bans imposed by other nations over Russia’s intervention in Ukraine.
Also adding to the volatility were international regulatory changes such as those imposed by China on Australian dairy imports in recent years, he said.
While giving those qualifiers, Mr Harvey expects farm gate prices to lift in the 2017-18 milk season and possibly reach a closing price next year of $6 a kilogram milk solids.
“(The end of the next milk season is) a long way out but we have some confidence in what we are seeing in the market,” Mr Harvey said.
He said global dairy commodity prices had increased but were not yet being reflected in significant rises in farm gate milk prices.
Mr Harvey believed part of the reason for that was because of the big drop in national milk production during the six months to December, reducing dairy processors’ returns but not their costs.
The plunge in Murray Goulburn’s milk supply meant it incurred higher costs due to processing inefficiencies, he said.
But Mr Harvey expected milk production would bounce back in 2017-18.
Mr Harvey said a good supply of home-grown feed for cows, hopefully assisted by a good autumn break, would reduce dairy farmers’ costs.
Heightened post farm gate activity in the dairy industry was also adding to its positive outlook, Mr Harvey said.
The positive activity included the increased competition for milk from the new milk powder plant that Midfield is building at Penola.
Other positives included processors’ investment in building production capacity, in higher value products or in diversification in bids to become more profitable.