In Focus: Dairy January 2019

Our podcast series continues this month with a brief report, designed to give you a quick summary of the major drivers global and Australian dairy prices and production, as well as where we see things headed over the next few months.

Key points

• Global Dairy Trade auction results have seen some upside since December after a fairly weak run over much of 2018. The headline GDT price index was up 4.2% at the latest auction on 15 January. Prices have been pushed higher by slowing supply growth and a sharp rundown in the European Union’s skim milk powder stockpile. Our indicator of Australian dairy export prices is up 10.2% m/m in AUD terms for January, the biggest monthly gain since 2016. Our forecasts do not point to major gains for global prices in USD terms over the coming months, although lower European Union stockpiles are certainly welcome.
• Farmgate prices have risen somewhat, with the largest two processors – Saputo and Fonterra – both announcing step-ups last year. Saputo’s southern region price rose in September to $5.95/kgms and Fonterra’s rose in October to $5.98/kgms.
• However, cost pressures have been intense, particularly for feed and water amid a very tough season across much of eastern Australia. Fuel and fertiliser have also been elevated, although fuel cost pressures have now eased substantially. It is likely that feed prices will remain high for a few months yet, with the grain shortage set to continue, unless there is a solid autumn break. Dairy Australia data shows season to date Australian milk production to October down 4.0% nationally. ABARES’ latest forecasts point to Australian annual production being the lowest since 1995-96.
• Our outlook for the dollar and interest rates is reasonably stable – we see the AUD in the 70-75c range (and possibly below) for the first half of the year, and official rates on hold until the second half of 2020.

For further details, please see the In Focus – Dairy: January 19 report