Positive price signals for Australian dairy industry: Rabobank seasonal outlook 2024

The average Australian dairy farm business will post a fifth consecutive season of profitability in 2024-25 — if they budget and plan diligently — according to Rabobank’s latest seasonal outlook. That’s despite a drop in farmgate milk prices expected for farmers in the southern milk pool. Rabobank expects minimum farmgate milk prices across the southern Australian manufacturing pool to range between $8 and $8.20/kgMS (milk solids) for the season ahead, down about 11 per cent from the current pricing. The report’s author, RaboResearch senior dairy analyst Michael Harvey, said with the deadline for the new-season milk pricing looming, Australian dairy companies were “walking a tightrope”, needing to send strong price signals to milk suppliers while navigating a backdrop of softer market returns. “In a market short of milk — and with an ambition to build momentum around the current milk supply recovery in Australia — dairy companies need to present sustainable milk price signals to suppliers in order to remain competitive,” Mr Harvey said. “However, Australia’s milk supply recovery is ahead of schedule — with some excess volumes being channelled toward bulk ingredients and commodities, which are underperforming in local and export markets — meaning parts of the product mix are loss-making. “Meanwhile, the domestic market is delivering better returns for dairy following a period of hyperinflation across the grocery aisle, but consumers choosing to trade down as a result of cost-of-living pressures is negatively impacting the domestic retail channels.” Mr Harvey said parts of the industry must brace for a reduction in farmgate milk prices in 2024-25. From now, Rabobank predicts any upside to minimum farmgate milk prices will likely need to come from further global dairy commodity market recovery. “And this is not Rabobank’s base expectation for the next 12 months given the sluggish global market fundamentals,” Mr Harvey said. “In fact, global market uncertainties warrant a more conservative approach to minimum pricing. “The dairy commodity market (in US dollar terms) has rallied from the 2023 lows that took a toll on farmgate milk prices in export regions outside of Australia. “But, while commodity returns are showing positive trends, the recovery in global commodity markets has cooled ahead of Australia’s new production season.” Mr Harvey said the bank expected major input costs for feed production to “remain range-bound at lower prices” heading into the new dairy production season. Other cost-inflation headwinds continue to linger, although are slowly receding, the report said. “There is sticky cost inflation in other parts of the business, with Australia still fighting to bring inflation back under control,” Mr Harvey said. “Broadly though, cost inflation across the Australian economy should continue to moderate in the coming season. This will be welcome news for Australian dairy farm businesses, which have been battling high overhead cost inflation.” Current seasonal conditions, and the three-month weather outlook, remain “quite mixed” for Australia’s dairy sector according to the report. “On a positive note, according to the Bureau of Meteorology, El Nino has ended with the El Nino–Southern Oscillation (ENSO) returning to neutral,” Mr Harvey said. The report said Australia was enjoying widespread growth in milk production across all regions and States in the 2023-24 season. However, it noted this milk supply recovery was off a low base with the sector shedding more than one billion litres of milk for manufacturing since the last major peak in milk supply in 2016/17. “Continuing farm profitability — coupled with ample feed and water availability — should provide a solid foundation for good milk production momentum into the new season,” Mr Harvey said. Rabobank forecasts Australian milk production will finish the 2023-24 season 2.9 per cent higher, with momentum expected to continue in 2024/-25 to deliver expected growth of 1.5 per cent.