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Ag News

Milk price could climb higher - Rural Bank Outlook 2019

  • By: "Prime" Ag News
  • Jan 10, 2019

Australian milk supply is down four per cent due to dry seasonal conditions and high input prices. We expect 2018/19 milk production to finish at nine billion litres. Production in most states will be lower this season. However, Tasmania is growing supply due to more favourable seasonal conditions combined with higher farm gate milk prices, and South Australia is continuing its return to 2015/16 supply levels.

Looking ahead to the first six months of 2019, we expect the Global Dairy Trade skim milk powder price to average around $2,600/tonne, 2.2 per cent lower than the current December
price. The average Global Dairy Trade cheddar price for the first half of 2019 is forecast to be $4,100/t, which is 4.9 per cent lower than the current December price. Downward price pressure is expected to come from increased milk production in New Zealand. This will be partially offset by more modest growth in milk supply in the EU and a decrease in supply from Australia.

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Export demand has become more consistent – driven largely by China. With milk supply falling, the scenario for Australian exporters is essentially doing the same volume of trade with less milk. This creates strong competition for milk and the prospect of higher farm gate prices. Milk powder exports for the 2018 calendar year are expected to finish 2.6 per cent higher by volume, driven by a 14 per cent increase in exports to China. The volume of cheese exports is expected to end 2018 1.2 per cent higher. Demand for exports is expected to remain stable in 2019 however volume and value of exports could be lower due to falling milk production in Australia.

We are expecting an average farm gate milk price of $6.10/kg MS in southern dairy states this financial year. However, given supply is low, the average price could climb further. Before the milk price drop of 2016, the farm gate price averaged $6.24/kg MS which isn’t far away from the current average indicating milk prices are trending higher.