Dairy prices to increase further

Dairy prices are likely to increase further in 2013 due to tightening supply and steady demand, according to a recent Situation and Outlook report from Dairy Australia.

While international demand for milk has been steady, buyers are unsure if more milk being produced by New Zealand herds will offset reduced growth from the EU and USA, the report said.

“Most buyers are in a comfortable position regarding stocks, with little urgency to enter the market in late 2012,” said Dairy Australia’s industry analyst, Norman Repacholi.

Higher input prices are placing an increasing strain on US and EU milk producers, which is slowing growth in those regions, Repacholi said.

“In NZ, milk production has been strong for 2012/13. While it’s unlikely to stay as far ahead in the second half of the season, milk production will still be 3 to 5% ahead of last year,” Repacholi said.

This year, the average southern farmgate is likely to finish around $4.90 to $5.10 kg/MS (approximately 36-38 cpl), the report said, around 8% lower than 2011/12.

“Where the Australian dollar moves, relative to processor budget forecasts, will be the key driver in the final season milk price,” said Repacholi. “It will also help determine when the next step-up is made.”

Nationally, milk production forecasts have been lowered to flat-to-0.5% to around 9.5 billion litres as a result of increasingly difficult seasonal conditions and farmgate margin pressure.

Analysis of supermarket sales volume data revealed that the branded milk share of supermarket sales has rebounded, but Dairy Australia says it’s too early to confirm if the rebound results from increased promotion or the introduction of permeate-free products.

The average price per litre for fresh white drinking milk is down, but Dairy Australia notes that average prices for the higher value-added branded modified milks are lagging further behind, bringing the overall average down.

The Situation and Outlook report is funded by the dairy service levy. The full report is available from www.dairyaustralia.com.au.