Rabobank analyst: Competition for milk to aid returns

Senior dairy analyst Michael Harvey also forecast a $5.45 a kilogram of milk solids commodity price for the first half of next season, starting July. He told the huge crowd at the Noorat Recreation Reserve last week this forecast was weighted toward cheese to reflect Australia’s product mix and assumed an Australian dollar worth US76c.

Mr Harvey said this forecast was due for revision in the coming weeks, but the bank was now expecting the Australian dollar to drift back and it predicted US73c for this year.

Mr Harvey told the crowd this forecast differed from the Freshagenda forecast last month, which had a commodity milk value of range of $4.30 to $4.50 a kilogram of milk solids plus “value capture” because Freshagenda assumed an Australian dollar at US80c and no commodity price recovery.

Mr Harvey said milk loss had impacted the supply chain in Australia, but “competitive tensions” for milk would work in the farmers’ favour.

“There are two big global dairy companies butting heads for milk supply,” he said before referencing Saputo’s aim to grow Murray Goulburn’s milk by 600 million litres if it is successful in acquiring the co-operatives assets and liabilities as part of a $1.3 billion transaction.

“(Farmers) are in a strong position (given) the competitive tension for milk supply, not just for one season for years to come,” he said.

Mr Harvey said the Australian industry was changing with a focus more on cheese. “Overall we are growing toward higher margin products, not just consumer (higher margin), higher margin commodities,” he said.

“We are moving towards being a cheese country and that is a natural space for us to play … we will not compete against New Zealand, the cheese market is less volatile, with a bit more value-add product, and there’s a shortage of cheese in Asia.”

Across the globe, farmgate milk prices have started to decline in key dairy regions but Australia has been “playing catch-up with its global peers” following prices cut by Murray Goulburn and Fonterra almost two years ago and the impact on confidence, Mr Harvey told the crowd.

He said there was a lot hinging on what the EU would do with its milk supply this season, as it still has a 380,000 tonne stockpile of skim milk powder to disperse.

He said there were questions about whether EU production would be processed into liquid milk and sent to Asia, made into cheese or whole milk powder, in the wake of recent changes to the way SMP is purchased for intervention. Mr Harvey told the crowd EU intervention opened on March 1.

The Chinese import appetite would continue to grow but at a more “sustainable” level, Mr Harvey told the crowd.

Since mid-2016 it had started growing again and, in liquid milk equivalents, for 2017 China imported 20 per cent more dairy products. This year it is expected to grow by 8 per cent.

The Russian market remains closed and while Mr Harvey was confident it would one day reopen, he said EU companies were “rejigging” their corporate structure away from Russia, building supply chains and markets with China and South-East Asia. “We are unlikely to see the EU rush back to Russia,” he said.

Back in Australia, Mr Harvey said the industry was undergoing change and this would continue for another 12 months.

He said the industry would have to consider how it would handle spring peak production without a co-operative, especially with little investment into milk drying capacity.


Source: The Weekly Times

Link: https://www.weeklytimesnow.com.au/agribusiness/dairy/rabobank-analyst-competition-for-milk-to-aid-returns/news-story/c6e0a792ae1af27da3e8e7e6b1a33fac

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