A surging global milk market is starting to affect the domestic trade, with record new season prices for Australia’s dairy farmers.
Pressure is also building on domestic retail margins with cut price private label milk the most vulnerable.
Coles has announced it will pay 20 per cent more to processors for milk going into its private label brand.
Lion and Parmalat, large domestic milk processors, are yet to announce contracts. The Dairy Farmers Milk Cooperative has rejected the first Lion offer, and dealings may have to go through mediation.
But the leading export processors have announced 24 per cent higher opening prices. Fonterra, Murray Goulburn and Tasmanian Dairy Products are all offering strong opening prices of $5.60 per kilogram of milk solids.
Warrnambool Cheese and Butter has gone five cents better for Victorian suppliers.
United Dairy Power is offering $6.05/kg milk solids.
Fonterra and Murray Goulburn forecasters say the closing price could rise to $6/kg milk solids.
The falling dollar is helping. Forty per cent of Australian production is exported, so as the dollar falls the returns to dairy farmers will get better.
Export oriented Murray Goulburn says the lower dollar means an extra $12 million in the year to the Cooperative.
New Zealand’s dairy farmers All in the Black
In New Zealand there is no supermarket milk price war, and farmers are jubilant about their prospects.
Dairy farmer Chairman Willy Leferink has five farms and is investing in his intensive dairies.
«We’re just building the barn where we’re going to put the cows in for winter.»
«Money is not the issue at the moment. What’s stopping dairy is the environmental legislation that’s on the cards.»
Fonterra’s confidence in the market is so strong, it’s offered a record price to New Zealand dairy farmers of $7 (NZ) a kg of milk solids. That’s $5.90 in Australian dollars.
It’s the first time Fonterra has offered a guaranteed milk price for the season, instead of the normal price per month.
Bruce Turner, Fonterra’s Director of Commodity Risk and Trading says, «some of our farmers need a lot more certainty, so that they can manage their businesses. They’ve got debts to pay. They’re investing or expanding, this is a product for them.»
Fonterra doesn’t recommend the farmers lock in everything.
«We’ve said a maximum of 75 per cent and the idea is that they will build up a portfolio just like you do when you’re borrowing from a bank; some fixed and some variable.»
While the milk payment in Australia is slightly different, the Fonterra Australia division is working on a similar guaranteed milk price for farmers to lock in a payment early.
Europe’s milk too valuable to pour over the EU Parliament
Europe’s dairy farmers are also seeing some of the best price in decades.
The opening prices are out now at an average payment to farmers of 40 Euro cents/kg milk, which simply equates to 57 cents per liquid litre in Australia.
In November last year, farmers protested over low milk prices and changes to EU support, by spraying milk over the European Parliament.
«The market situation is much better than last year,» says Dutch farmer representative Klaas Johan Osinga, of LTO Netherlands.
In the Netherlands milk prices have almost reached the level of 40 Euro cents/kg of milk, compared to 33 cents in 2012. The price of feed is also dropping and the margins are improving.
The loosening European milk policy will allow big dairies to get bigger, to respond to booming demand in Asia.
A-Ware Food Group and Fonterra have a joint venture to develop new multi million dollar cheese factories in Frisland, Holland.
Australia is not alone in investing in dairy processing to supply surging demand in Asia, and Australian farmers are not yet confident they can make a profitable living on the prices being offered domestically.
«The domestic market doesn’t have the premium that we used to have,» says Peter Costello, dairy farmer in northern Victoria who supplies Parmalat
With the supermarket taking that massive share, Mr Costello welcomes Parmalat’s move to invest more in the manufacture of export products, like the $150 million investment in a UHT long-life milk plant in Rowville, Melbourne.
Source: ABC Rural
