Rise and rise of milk price

A SHRINKING milk pool in Australia is driving competition between dairy processors and Tasmanian dairy farmers are set to benefit.

The race to secure the potentially scarce dairy supply between major processors has led to a steady increase in milk solid prices in 2022. This week Fonterra increased its farmgate milk price by a further 30 cents per kilogram of milk solids, taking the average price to a record high of $9.40 kilogram of milk solids. The processer had opened the season with prices at $8.25/kgMs.

Last week Saputo increased their non-exclusive milk solid prices up to $9.30 per kilogram of milk solids after opening the season at $8.50/ kgMs. In July 2021 both companies offered prices between $6.50 and $6.95/kgMs.

Dairy Australia industry analyst Eliza Redfern said the shrinking milk pool in Australia was influenced by several factors that spanned the agricultural industry. “Australia’s milk pool is shrinking and there are several factors that are coming in to play to make this happen,” Ms Redfern said. “We’re seeing an increase in farm exits in the dairy sector driven by factors like increasing land prices and competition from other agricultural commodities.”

Ms Redfern also noted the current high prices and the allure of a less labour-reliant industry were also luring dairy farmers towards beef farming. “While there are labour constraints across many agricultural industries dairy is certainly one of the most labour reliant,” she said. “When there is a reduced labour pool the appeal of an industry like beef, which doesn’t require as many workers on-farm is certainly influential.

“This is all on top of the industry-wide input costs.” Ms Redfern said while costs continued to grow there was still evidence that dairy farmers would continue to benefit from market competition. “The small milk pool is driving farm gate prices historically high. “We’re seeing this milk shortage reflected in major markets across the globe where processors are competing to secure milk for the following season. “The strong demand for milk globally means prices are increasing across the board.” “That is good news for a place like Tasmania where 70 per cent of the milk processed is exported.”

Ms Redfern said while it was difficult to predict what future price stability would look like, well-supported commodity levels alongside the price competition and the shrinking milk pool, bode well for consistent price growth. “Historically high profit margins are being eaten away by the input costs associated with dairy but the National Dairy Farmers survey indicates 93 per cent of farmers are expecting to make profit over this season and last.”