Farmgate milk prices run counter to global market trends

The strong Australian farmgate milk price is insulating dairy farmers from a challenging global market led by weakened Chinese consumer demand.

Dairy Australia industry analyst Eliza Redfern said the industry was navigating a challenging global market, amid strong farmgate milk prices and growth in retail value across the dairy category.

In Dairy Australia’s September 2023 Situation and Outlook Report, Ms Redfern said lower export prices were a result of weakened global demand for dairy products, particularly from China.

She said cost-of-living pressures continued to affect consumer spending and as a result, importers globally were buying “substantially reduced volumes of product”.

Competition for milk among processors was “fierce” following the announcement of minimum milk prices at the start of June.

Ms Redfern said despite a 5 per cent contraction in milk flows during the 2022-23 season due to weather, flooding, labour issues, resource competition and farm exits, growth was recorded in the final months.

“Strong farmgate milk prices place Australian farmers in the best possible position as the industry faces challenges.”

She said the Australian farmgate milk prices ran counter to trends in the global market.

“New Zealand in particular, has seen a rapid drop in milk prices, far below Australia’s levels,” Ms Redfern said.

“Additionally, stiff competition of dairy products from New Zealand and the northern hemisphere being sold in Australia and internationally, presents a difficult landscape for Australian manufacturers to operate in.

“Other global dairy exporting regions like New Zealand, the United States and Europe initially recorded production growth in 2023 but are now stabilising.

“Variable weather conditions and declining herd numbers, along with tightening margins, are also factors at play.”

Dairy has continued to deliver value growth in the retail sector and retail prices have increased at the fastest rate compared to all other food groups, with the total value of dairy products sold offsetting any declines in volume sold.

Fresh milk ranks third in total retail market value growth, closely followed by cheese in fourth place and yoghurt in ninth.

Ms Redfern said after a temporary easing in the first half of 2023, farm input costs were climbing again, particularly for fertiliser.

“There are also heightened risks and regional variations to the outlook for homegrown feed,” she said.

The yet-to-be-declared El Nino event across Australasia could bring drier conditions, “weighing on feed availability”.

“Overall, yields are expected to be average, supported by larger crop planted areas, but minimal feed price declines are anticipated.”