March 4, 2011

Australian dairy export prices on the rise

Export prices for Australian dairy products are steadily increasing, stemming from strong demand from emerging markets like Southeast Asia and the Middle East.

Also, recent cyclones, floods and earthquakes in Australia and New Zealand have had a big impact on milk supply.

World dairy prices can fluctuate dramatically. In 2008, when the Global Financial Crisis hit, prices for whole milk powder dropped from US$5,000 per tonne to US$2,000. This year, prices have come back up again to around US$4,200 per tonne.

Analysts said that prices are still rising, but it is hard to predict how far Australian dairy farmers could capitalise on the situation.

"We do have an unusual situation at the moment where export market prices are particularly high for products like whole milk powder, in particular, and also for things like butter and dairy fat products," the analyst said.

"At the moment, they are providing good returns, but it's a commodity return as opposed to a return on value-added products that would occur through the domestic market."

He said the larger dairy regions of Australia are likely to benefit in some way.

"It means that those producers that are in export-oriented regions will see better returns on that commodity business," he said.

"Those export prices that flow through to milk prices will be higher than they've been in other years, with the exception of 2008, that helps lift prices overall where there's competition between domestic and export milk markets.

"But in other markets where states are more domestic-oriented, the net export market prices are somewhat of a benchmark and a comparison, but it doesn't relate directly if the state isn't export oriented."