October 9, 2007

 

Australian milk prices on the rise

 

 

Milk prices continue to climb in Australia as processors continue to struggle with the supplies that are seen to remain tight as due to continuous drought.

 

The strong farmgate prices will help farmers who are battling to meet escalating feed costs that are being driven upwards by another tough season.

 

New Zealand farmers are fortunate to have a strong production outlook so they can take advantage of record high international prices.

 

But poor seasonal conditions across some of Australia's major dairying regions are expected to restrict production.

 

The latest update from the Australian Bureau of Agricultural and Resource Economics (ABARE) suggests water supply problems, along with high feed costs are expected to result in a 4 percent drop in milk production in 2007-08.

 

Fonterra Australia has announced its first increase of the season of 10 cents (c)/kg butter and 25 cents/kg protein.

 

Fonterra's milk supply general manager in Australia Steve Nelson says the early increase acknowledges the difficult conditions still faced by suppliers during this prolonged drought.

 

Northern Victoria processor Tatura Milk announced a special drought premium of 24c/kg butter and 60c/kg protein on milk supplied from October to December 2007.

Dairy Farmers Group has also lifted prices again, and these follow rises by Parmalat in south Queensland and Murray Goulburn in Victoria.

 

Australian dairy consultant Steve Spencer, Freshlogic said competition for milk supplies within Australia has been heating up for some time and has been pretty strong for the past three years.

 

Spencer said global demand is underpinning rates, and the poor feed conditions combined with the outlook for declining milk production have certainly driven higher milk prices.

 

He says major cooperatives like Murray Goulburn set competitive prices as they try to extract as much value for farmers, which sets the base for other companies.

Looking at the eastern situation, there are two different markets north and south of the Murray River.

 

In the south, Spencer says the market is driven by exports and prices will continue to move up only as long as the market can support.

 

But in the north, the rates are based more on costs, and with the rising feed prices reflective of companies working to try to keep farmers in business. Supply and demand is tight, and the fresh milk demands are there every day.

 

Nelson says Fonterra is committed to maintaining its strong opening position as milk price increase is in line with its continuous assistance to suppliers with cash flow on-farm and the need to keep returns flowing through to them.

 

He added he will continue interest-free advances for fodder and grain purchases until March 2008.

 

Nelson says as the international market remains strong, Fonterra believes commodity prices will continue to underpin dairy value in the local market.

 

Even with milk prices at historic highs, cash flow on farms is tight in Australia, particularly early in the season.

 

Dairy Australia's farm productivity and delivery manager Steve Coats says many farmers are under increasing financial pressure and are concerned about how they will cope with the conditions

 

The significant cost of sourcing feed for cows, especially in the irrigation areas, means cash flow on farms will be tight.

 

Coats says the situation is stressful for farmers who are making buying decisions on the cost and availability of grain and hay both now and into the summer.