Farmgate milk price forecast: The pros and cons of looking ahead

Last week, analysis firm Freshagenda forecast a farmgate milk price midpoint of $5.25 a kilogram of milk solids for next season, starting July 1. This will represent a reduction on its current forecast for this season of $5.70-$5.90/kg/MS.

The uncertainty about how much of an impact EU milk production would have on global milk volumes is expected to hang over the market, according to Commonwealth Bank analyst Tobin Gorey, but he said next season was too far out for him to predict.

A week ago, whole-milk powder futures “calibrated” with the Global Dairy Trade results, according to Mr Gorey, after sitting higher than the auction values. This had coincided with many dairy prices in the EU softening in recent weeks. Smaller than anticipated growth in New Zealand milk production could be one market fundamental that would limit the price decline, according to Mr Gorey.

Australian Consolidated Milk general manager Peter Jones said it was far too early to forecast what the following season farmgate milk price might be.

“The market responds to market signals and it is so far out from the start of next year. Some negative signals this far out isn’t necessarily all bad,” Mr Jones said.

“On the flip side, if they were talking $7 (kg/MS) for milk next year, imagine what would happen in the next nine months. Production globally would increase and we would have milk coming out of our ears and this would have downward pressure on prices.”

Current market sentiment and forecasts could have the effect of reducing milk production globally and by the time we get around to the Australian opening milk price it could have filtered through to lower production globally, which could be good for Australia, he said.

He also said if the Australian dollar fell to the “mid-70s” it would be enough to compensate for a drop in commodity prices in the past month.

At a farm level, consultant John Mulvany said price fluctuation management came down to understanding costs.

“Even though many people don’t work out their cost of production, at the end of the day it is one (thing) that will have a massive impact on your business,” he said. “Some people can do it, some people can’t and others don’t want too.”

Mr Mulvany said he was averaging one to two calls a month from complex, high-input farms where suddenly “the light came on”, realising they had positioned their business for the “two really good years in 10” rather than the “five or six average years”.

With a predominantly pasture-based system farmers should be striving for a zone of $5/kg/MS or less, he said.

“We are still a pasture-based dairy industry and with pasture based we should be able to achieve a lowish cost of production with the right cow, in the right place at the right time,” Mr Mulvany said.

Dairy Australia analyst John Droppert said forecasts of lower farmgate milk prices next season would draw out the recovery, but he said discussion about market trends was a “useful conversation to have”.

“There had been an underlying assumption that last year was a bad year, this year is improved and next year would be better because we were due for it, but that is not necessarily how (markets) work,” he said.

 

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