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Rabobank forecasts price of $6.60/kg MS

By Country News

Positive factors in the global dairy market — along with a softening Australian dollar — have seen Rabobank lift its forecast full-year southern region milk price to $6.60/kg of milk solids for 2019-20.

In its latest Global Dairy Quarterly report, the specialist agribusiness bank said tightening global milk supply, reduced stocks and solid demand meant market fundamentals remained strong for dairy exporters, and this was set to support commodity prices at current levels into the third quarter of 2019.

Rabobank senior dairy analyst Michael Harvey said there were a number of factors going in the industry’s favour.

‘‘Strong opening prices will support cash flow for producers, while there has been some recent rainfall, feed costs have come down slightly, confidence levels have improved and milk price signals remain strong,’’ Mr Harvey said.

He said the bank had revised up its Australian milk price forecast for both 2018-19 and 2019-20.

‘‘A late-season rally in commodity prices, combined with a weaker currency, has seen a slight revision upwards in Rabobank’s modelled farm gate milk price for southern Australia for 2018-19,’’ he said.

‘‘The weighted average milk price is now $6.05/kg MS. Based on Rabobank’s weighted average commodity forecast and a spot currency of 0.69, full-year milk prices in southern regions will average $6.60/kg MS in 2019-20, up from the earlier forecast $6.40/kg MS.’’

However, the report cautions that further upside in global dairy prices is limited, with the commodity cycle now at its peak.

‘‘Purchaser stock levels have improved and global milk production is also set to begin to rise — albeit slowly,’’ it said.

With the Australian milk season winding down slightly more quickly than expected, Rabobank is expecting national milk production to close the current season down 8.5 per cent at 8.5billion litres.

Despite the improving outlook for milk pricing, Mr Harvey said the challenge to begin rebuilding milk supply would linger into the new season.

‘‘Autumn was dry for many dairying regions, leading to ongoing feed shortages. Also, many dairy farm operators will need time to rebuild herds,’’ he said.

‘‘With a return to profitability as milk prices improve, an immediate focus will be on repairs and maintenance ahead of major expansion projects.’’

As a result, the production forecast in 2019-20 has been revised down, with supply tipped to fall by two per cent, taking annual production back to 8.4billion litres.