Rabobank raises milk price forecast on back of solid global market conditions

Positive factors in the global dairy market – along with a softening Australian dollar – have seen Rabobank lift its forecast full-year southern region milk price to A$6.60/kgMS in 2019/20.

In its latest Global Dairy Quarterly report, the specialist agribusiness bank says tightening global milk supply, reduced stocks and solid demand mean market fundamentals remain strong for dairy exporters, and this is set to support commodity prices at current levels into the third quarter of 2019.

However, the report cautions that further upside in global dairy prices is limited, with the commodity cycle now at its peak. Purchaser stock levels have improved and global milk production is also set to begin to rise – albeit slowly, it says.

For Australia though, overall, the bank is predicting a better season ahead for the country’s dairy sector.

Rabobank senior dairy analyst Michael Harvey says there are a number of factors going in the industry’s favour.

“Strong opening prices will support cash flow for producers, while there has been some recent rainfall, feed costs have come down slightly, confidence levels have improved and milk price signals remain strong,” he said.

Milk price

Mr Harvey said the bank had revised up its Australian milk price forecast for both 2018/19 and 2019/20.

“A late-season rally in commodity prices, combined with a weaker currency, has seen a slight revision upwards in Rabobank’s modelled farmgate milk price for southern Australia for 2018/19. The weighted average milk price is now A$6.05/kgMS,” he said.

“Based on Rabobank’s weighted average commodity forecast and a spot currency of 0.69, full-year milk prices in southern regions will average A$6.60/kgMS in 2019/20, up from the earlier forecast A$6.40/kgMS.”

Mr Harvey said competition for milk between dairy companies remained strong, and this had supported early and record-high opening and forecast closing milk prices in 2019/20.

“There has been a round of official milk price announcements from dairy companies in the lead up to the new 2019/20 season starting on July 1,” he said. “There is good news for dairy farm operators with record-high opening prices, which will provide cash-flow support at the start of the season.”

Australian production

With the milk season in Australia winding down slightly more quickly than expected, Rabobank is expecting national milk production to close the current season down 8.5 per cent at 8.5 billion litres.

Despite the improving outlook for milk pricing, Mr Harvey said, the challenge to begin rebuilding milk supply would linger into the new season.

“Autumn was dry for many dairying regions, leading to ongoing feed shortages. Also, many dairy farm operators will need time to rebuild herds. With a return to profitability as milk prices improve, an immediate focus will be on repairs and maintenance ahead of major expansion projects,” he said.

As a result, the bank’s forecast for Australian milk production in the 2019/20 season has been revised down, with milk supply now expected to fall by two per cent, taking annual production back to 8.4 billion litres.

/Public Release.