Agribusiness banker Rabobank predicts battle lines to be drawn between key dairy processors Fonterra and Saputo, increasing Tasmanian producer’s profits.
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Canadian-based Saputo, which has just bought Murray Goulburn, is expected to work on winning back suppliers lost over the past few years, while Fonterra has expansion plans in mind.
In addition, smaller and newer dairy players will continue actively recruiting milk to secure their share of the milk pool, Rabobank senior dairy analyst Michael Harvey said.
“The Saputo acquisition of Murray Goulburn, pending approval by the Foreign Investment Review Board, is set to fundamentally transform the ownership of the milk supply chain,” Mr Harvey said.
“And then you have a number of dairy companies that have already taken up the lost milk from Murray Goulburn and they will be determined to retain their recently-acquired milk suppliers,” he said.
Competition for milk supply should translate into higher premiums for farmers and help compensate for the lower commodity price.
“In the global market while risks loom in the near term, this is likely to see dairy companies take a conservative approach when opening their prices for the 2018/19 season,” Mr Harvey said.
“The prospects for a gradual tightening in global dairy markets is bright, with the timing of the recovery expected to favour Australia by taking place through our seasonal peak in production,” he said.
Between Rabobank’s latest global commodity price forecast and the assumption of a spot currency rate of US$0.77, the bank forecasts a base farmgate milk price of $5.40 per kilogram of milk solids during the 2018-19 season.
“However greater competition for milk is likely to bring higher value-add payments to Australian producers – and above those evident this season – with Rabobank forecasting an annual average farmgate range across southern Australia of $5.40 to $5.90 per kilogram of milk solids in 2018-19.”
“While the southern Australian export industry often beats the commodity market, it is not always the case.
“But looking to the past 10 years, the average premium between the base commodity milk price and average Victorian farmgate prices has been around $0.40 per kilograms of milk solids.”
Australia’s dairy processing capacity is estimated to increase by 900 million litres in the next two years.
“This comes off the back of one billion litres of commercially-viable processing capacity coming on board in the past two seasons.”
Johanna Baker-Dowdell
Johanna has more than 22 years experience as a journalist for newspapers, magazines and online publications.
Johanna has more than 22 years experience as a journalist for newspapers, magazines and online publications.
