Markets

Seasonal milk outlook improves

By Dairy News

Milk processors will be competing strongly for milk supply, with milk production slowing and robust demand from Southeast Asia and China, dairy consultants Fresh Agenda believes.

The seasonal outlook has improved with slowing milk growth in key exporting regions and robust demand from Southeast Asia and China.

Based on projected commodity values from its Global Dairy Directions analysis, Fresh Agenda is forecasting an improvement in the average southern farm gate milk price in 2019–20.

“As always, this forecast is not without risk,” the report from Fresh Agenda said.

“Apart from the perennial exchange rate gyrations, there are some key risks we are currently seeing to this outlook.”

The reported cited these key risks as:

  • The rate of EU milk growth during the spring period;
  • The impact of trade disruptions associated with Brexit and United States-initiated trade wars;
  • Critically for local returns, the resilience of cheese prices given slowing demand and increasing Northern Hemisphere competition.

The Fresh Agenda analysis found:

  • The rapid sell-down of the EU’s SMP intervention stocks, the strong spring flush in NZ, and higher availability of cheap South American powders increased availability and weakened the market in late 2018.
  • Slowing milk production growth, particularly in the EU and more recently in New Zealand, has limited export availability, while strong demand for low-priced milk powders from China and Southeast Asia has tightened the market and lifted prices. Butterfat and cheese prices have remained relatively high despite lukewarm demand.

‘Given the flow-on effects for Oceania wholesale prices, we expect the Commodity Milk value to average $5.60-$5.70 kgMS for the 2017–18 season. The likely value-capture achievable by companies and paid to milk producers above the underlying CMV is expected to range between 4 5 and 55¢ per kg of milk solids,” the report said.

Looking ahead over the next year, we expect commodity values to recede a little from current levels which will flow through to a commodity value of milk in the range $5.80 to $6.20 kgMS. We expect the value capture to edge higher in 2019–20 given local milk supply shortages and scrutiny of retailers with respect to the dairy industry, to between 50 and 60¢ per kgMS.

“Companies may offer prices that differ from this forecast ( which is based on industry averages) due to differences in product mix and business models. Farmgate prices on offer in 2018–19 will reflect strong competition for milk supply. Saputo will aim to rebuild milk intakes to fill its ex-MG assets, while new facilities in north and west of Victoria will also be seeking additional supply. Stronger competition has the potential to lift prices above the fundamentals reflected in our outlook.”

Fresh Agenda has developed the Commodity Milk Value to provide industry participants with updates of the outlook for expected commodity milk farm gate values for the next two years.