SOUTHERN Australian dairy farmers should expect fairly stable farmgate milk prices for the next four years, before growth in world production puts pressure on returns the following year.
That was the forecast from the Australian Bureau of Agricultural and Resource Economics and Sciences, as presented in Canberra yesterday.
ABARES analyst Andrew Cameron said steady global supply and demand for dairy would mean farmgate milk prices of 46c to 48.4c a litre for the next five years.
The commodity forecaster has assumed the Saputo would buy Murray Goulburn’s assets and liabilities this season and as a result the farmgate milk price for a large portion of dairy farmers would be 47c a litre.
A 3 per cent rise, off the back of a falling Australian dollar, is forecast for next season at 48.4c/litre.
Competition between southern milk processors for supply is expected to provide support for farmgate milk prices in the medium term, according to ABARES while a growing focus on cheese production by Australian processors is also likely to make farmgate milk prices more sensitive to movements in the global cheese market in the medium term.
In real terms, the farmgate milk price is forecast to reach 47.7c a litre in 2020-21 before falling to 46.4c by 2022-23 due to a growth in global production.
A risk to next season’s forecast — starting July 1 — is the Australian dollar. ABARES assumes it would fall to US76c.
Mr Cameron said ABARES had forecast the Australian dollar to finish this financial year at US78c, the following year it would be at US76c and then down to US74c in 2019-2020.
Australian milk production is forecast to expand to 9.3 billion litres this season, according to ABARES, up from about nine billion litres last financial year.
Global cheese prices were forecast to stabilise at $US3900-$US4200 a tonne, with higher US and EU cheese production across the medium-term expected to largely meet an increase in world demand.
ABARES has predicted strong demand for whole milk powder from China, the Middle East and parts of Africa, but prices increases are expected to be moderated by a growth in supply, particularly from New Zealand.
Mr Cameron said he anticipated skim milk powder would remain at less than $US2000 a tonne for at least another season, but growth in population and income was expected to result in higher world demand in later years.
“This is not likely to result in higher prices until the world stock overhang is eliminated in the second half of the outlook period,” the report said.
ABARES forecast processors would be expected to respond to a recovery in the profitability of butter-SMP manufacturing by increasing supply and reducing the world butter prices during the next five years.
ABARES expects the US to expand its cheese exports, off the back of herd expansion and higher milk yields.
Growth has been expected to outpace domestic demand, resulting in higher exportable supplies of cheese, butter and SMP.
“Ongoing negotiations over the future of the North American Free Trade Agreement are expected to contribute to uncertainty on world dairy markets,” ABARES report said. “A potential breakdown in the agreement presents a downside risk for world dairy prices, particularly cheese.”
By: SIMONE SMITH
Source: The Weekly Times