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ABARES says farm gate milk prices will drop to internationally competitive levels

By Daneka Hill

Dec 9, 2020

Good weather means dairy farming will be easier for the rest of the season, but it’s also joined by a nine per cent drop in the average farm gate milk price.

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In its December quarter dairy report, the Australian Bureau of Agricultural and Resource Economics and Sciences forecasts milk prices will fall due to global production increases and demand shocks.

According to the report by Damien Thomson, a beef farm manager turned ABARES economist, the 2020-21 season is expected to deliver a 47.9 cents per litre average to farmers as a larger milk pool eases competition among processors.

This domestic price fall will bring Australia in line with current world prices for milk powders, cheese and butter, which are all currently falling by 15 to 4 per cent.

Skim milk powder is the only dairy commodity expected to rise globally — by a small two per cent.

In the ABARES report it was noted butter and cheese faired the worse through the COVID-19 shutdowns while milk powder was less impacted.

“Milk powder markets were supported by strong demand from China and prices remained relatively steady. Supply has also remained unaffected because producers have successfully managed minor labour issues and hygiene requirements,” the report said.

Australia’s total milk production is forecasted to increase by two per cent in 2020-21 to nine billion litres, driven by the La Niña event supporting high pasture growth along the eastern seaboard.

Improved seasonal conditions coupled with low hay and feed grain prices have led to higher retention and restocking of cows, despite the highest cull cow prices in five years.

The ABARES report said if this retention was fully realised it would lead to higher pregnancy rates and the rebuilding of herds already genetically stronger thanks to drought-induced culling in 2018-19.

A positive market trend for dairy processors to latch onto is Australia’s dairy exports in Asia remaining strong, and in the case of Singapore, China and Thailand, growing.

In an ironic twist — as Australia’s barley, wheat, beef seafood and wine industries battle with the Chinese Communist Party’s trade blockages — China’s population has been buying more Australian dairy.

According to the ABARES report this is due to the new trend among the Chinese to buy from countries with strong food safety reputations and more cautious inventory management.

This is driven by a trend in China to blame food imports for local COVID-19 outbreaks.

Casualties include Norwegian salmon which was banned for a time and a new favourite theory that COVID-19 was imported into China from frozen meat products.