Global Dairy Trade: Global milk price falls through the floor
In short: China’s dramatic dairy diet has caused international trade figures to fall to levels last seen during the milk market’s 2016 meltdown. Overnight, the Global Dairy Index fell for a seventh straight trading session — but this time the plunge was particularly pointed with a 7.4 per cut to the headline figure.
JMI Wealth director Andrew Kelleher said the huge drop in the whole milk powder index was of particular concern for farmgate futures.
“The real issue is: How long prices stay this low?”
To read the article in full you will need a subscription to the newspaper, if you already have a subscription or wish to subscribe go to: The Weekly Times
Source: Alex Sinnott, The Weekly Times, 25 July 2023
Milk price comparison: Fonterra beats Bega and Saputo
Fonterra leads on farmgate price ahead of rivals Saputo and Bega, but all dairy processors are struggling. See the latest milk price comparison.
New Zealand dairy giant Fonterra has beat its major rivals to top the milk price pool, despite embattled Canadian processor Saputo’s recent 10-cent step up.
Milk2Market’s latest milk price comparison has Fonterra offering $9.52 a kilogram of milk solids for farmers delivering two million litres, followed by Bega Cheese on $9.45/kgMS, with Saputo on $9.40/kgMS.
Competition among processors for farmers’ milk was already strong heading into this season, but La Nina-driven floods and heavy rain swamped pastures and drove national milk production down 6.5 per cent to the end of October.
If the trend continues Australian dairy farmers will produce just 7.99 billion litres this season, compared to 8.55 billion in 2021-22 and 9.8 billion seven years ago.
Processors have not been able to run their processing plants at anywhere near capacity and have also been hard hit by the global energy crisis.
Diesel price hikes have driven up transport costs, while gas, used in evaporators to make milk powders, has soared to record levels.
While Saputo, Bega Cheese and Fonterra negotiate their own contract gas prices with suppliers, recently gazetted standard contract rates show AGL has lifted its weighted average small business tariffs by 22 per cent, Energy Australia by 35.9 per cent and Alinta Energy by a whopping 67.9 per cent.
Saputo has already rationalised its transport fleet and announced the closure of its Maffra plant and its bulk powders production at Leongatha, both of which use huge amounts of gas in their evaporators.
Skyrocketing input costs eat into dairy margins, despite record milk prices: ADF president
GRAIN PRICE INCREASE: Currently, one of the biggest costs is grain, with wheat prices jumping 25 per cent in recent weeks.
While high opening milk prices are critical for the viability of the Australian dairy sector, increasingly volatile global markets are taking effect with rising cost pressures through the supply chain.
There is strong competition from processors in the market, which is fantastic for dairy farmers.
The increase in the milk price paid to dairy farmers is not keeping pace with the unprecedented rises in the cost of farm inputs. Some farmers are under significant pressure. - Rick Gladigau
ADF recognises that these opening prices for milk at the farmgate are strong, and we believe there is potential for more increases because processors need to meet existing domestic and international contracts with a limited milk supply.
However, the costs of fodder, fuel, fertiliser and electricity are skyrocketing, eating into the margins of most dairy producers.
Currently, one of the biggest costs is grain, with wheat prices jumping 25 per cent in recent weeks. In extreme cases, feed costs can represent one-third of a dairy farm's turnover.
In a volatile market, the increase in the milk price paid to farmers is not keeping pace with the unprecedented rises in the cost of farm inputs. Some dairy farmers are under significant pressure.
It is timely for farmers to review their operations in response to the increasing input costs.
Real action needed to support dairy recovery
The next three years is a defining period for the sustainability of the Australian dairy industry. As the recognised national policy and advocacy organisation working for dairy farmers, we will be doing our utmost to ensure the reality of this situation is well understood by the Labor government and consumers.
The government made pre-election pledges that respond to several issues in our policy statement - which if properly executed - will help the profitability and sustainability of dairy farmers. These include:
setting minimum standards for nutrition in residential aged care;
improving existing regulations that deliver accurate and clear food labelling;
providing $500 million for agriculture in the $15 billion National Reconstruction Fund;
protecting the competitiveness of emissions-intensive export industries;
investing $3 billion from the $15 billion National Reconstruction Fund to fund emission reduction initiatives; and
directing financial support to energy efficiency projects under a new Powering the Regions Fund and funding two regional tech hubs.
More money needed for regions, biosecurity, jobs
Beyond these pledges, ADF is calling on the federal government to invest more in regional development, biosecurity capabilities and a skilled regional workforce to reduce risks to dairy production, support the adoption of supply chain traceability reforms and reduce the impact of pests and weeds.
It is heartening to read that 88 per cent of respondents to the 2022 National Dairy Farmer Survey reported an operating profit in 2020/21. With the rising cost of inputs during the past two months, the outlook for some farmers in 2022/2023 is less optimistic.
For many dairy farmers the uplift in opening prices will give them the confidence to continue to invest into their farms. For others, however, labour shortages, high beef cattle prices and soaring land values we will see them make a business decision to exit the industry for differing reasons.
Due to the surging costs of farm inputs, the need for movement in retail prices is critical. A significant upward movement in milk prices at the checkout in the short to medium term is essential.
The ongoing strength of the dairy sector is crucial to Australia's future, as we navigate the COVID-19 recovery phase. Resilient and prosperous regional communities need a robust dairy sector.
We look forward to working with the new Labor government to deliver on our election platform, much of which seeks to drive profitability and sustainability through the Australian dairy industry. This includes creating even more transparency of prices across the dairy supply chain.
Source: Rick Gladigau, President, ADF, The Land, 1 August 2022
Milk processors roll out 2022/23 opening prices
While opening milk offers for the 2022/23 season have been solid, they still fall short of what is needed to help the industry's economic recovery, according to dairy farmer advocacy groups.
While early opening milk price announcements have set new records, soaring input costs, skilled labour shortages, and extreme weather conditions may prove too much for some dairy farmers who find themselves lured by exceptional land values or the relative simplicity of beef production.
The Dairy Mandatory Code of Conduct requires dairy processors to publish standard form milk supply agreements for the following financial year on their websites by June 1 at 2pm.
Minimum opening milk offers for the 2022/23 season, so far.
Milk Solids (MS)
Fonterra: $8.25/kgMS
Bulla: $8.30/kgMS
ADFC: Jul-Dec $8.40/kgMS, Jan-Jun $9.20, full year average payout $8.80/kgMS
Saputo: $8.50/kgMS
Lactalis: $8.80/kgMS (northern Victoria) and $8.65/kg/MS (western Victoria and Gippsland)
Beston: $8.75/kgMS
UDC: $8.50/kgMS
Goulburn Valley Creamery: $8.50/kgMS
DFMC: $10.96/kgMS (Far North Queensland); $11.21/kgMS (south-east Queensland); $10.71/kgMS (NSW); $8.64/kgMS (southern Victoria); $8.74/kgMS (northern Victoria); $8.87/kgMS (South Australia)
Cents a litre (c/L)
Norco: 83-85c/L
DFMC: 78.24c/L (Far North Queensland); 83.09c/L (south-east Queensland); 77.7c/L (NSW)
Gloucester, NSW, dairy farmer and eastAUSmilk vice-president Graham Forbes said while some of the price rises were substantial, they were not enough to cover input costs.
"Some input costs, such as fuel, have doubled, while fertiliser has increased by 250 per cent," he said.
"The challenges for farmers shortly will be input costs, the availability of products, rising interest rates, general inflation, and instability within the economy.
"Just last week, wheat hit $500 a tonne."
Mr Forbes milks a herd of 700-odd predominantly Holstein cows and supplies Norco.
He described it as "terrible" to see milk prices still at $1.30 a litre when they were the same price in 2011.
"No industry can sustain that,' he said.
"If we don't get the price up, the whole industry suffers.
"We've been pushing for a $2 a litre minimum price in supermarkets, which I don't think is unrealistic in today's world.
"Everything else has gone up in the supermarkets; nothing else has been held at a low price for so long."
Brian Cox, Meralyn Pastoral Co., Kerry, Queensland, supplies milk to Lactalis, South Brisbane.
The third-generation dairy farmer milks 120 Holstein and Holstein/Jersey cross cows.
"I think it is still early days, and I am hopeful that the price will increase as competition for milk increases,' he said.
Mr Cox said the Dairy Mandatory Code of Conduct had been positive for farmers and provided a sense of stability.
"I would like to think it rebalances the power between processors and farmers," he said.
"As farmers, we never knew what prices other companies were offering. Now the information is general knowledge.
"The Mandatory Code has been valuable because it gives us some certainty about our options."
Mr Cox spoke of the most significant challenges facing the dairy industry in the next 12-months.
"The weather has just been horrific, and we are not set up for this type of weather in Queensland or anywhere," he said.
"One Saturday night recently, I was walking around in the mud, getting rained on, and I thought, 'I don't know if we get paid enough for this'.
"I hope it will be recognised that there might be a milk shortage again this season."
Mr Cox believes more farmers may consider exiting the industry.
"For the last 12 to 18-months, it feels like dairy farmers have been exiting to beef," Mr Cox said.
"There's also a lot of competition for land at the moment.
"Speaking from a Queensland and northern NSW perspective, we are not seeing young farmers coming through.
"I'm in my 30s, and I could count other farmers the same age on the one hand, and I don't think there would be many, if any, in their 20s."
Soaring fertiliser, fuel and grain prices are also taking their toll on farm businesses.
"We have noticed that fertiliser has been going up for the last two to three years - all our inputs seem to be going the wrong way," Mr Cox said.
"We are choosing to weigh up if there are benefits to fertilising at the current prices.
"For the last five to10 years, we have constantly been seeking efficiencies to counter increasing costs and lagging milk price; yes, the price looks like it will move, but inflation and all our expenses seem to be moving faster.
"We're working on getting better and better, and we're running out of places to look for the cheap options.
"For many farmers, it won't matter what price they are offered for their milk, they could go to a dollar, and they're not interested.
"They have already decided they are exiting, so it is too little too late."
The latest Dairy Australia Situation and Outlook report has indicated that after successive seasons of recovering profitability, the net effect of rising fertiliser, fuel and grain costs on margins amid the conflict in Ukraine and ongoing COVID-19 disruptions is a crucial question as farmers and processors try to plan in a volatile market.
Dairy Australia's industry insights and analysis manager, John Droppert, said ongoing growth limitations and heightened margin risk are expected to offset good milk prices and favourable seasonal conditions, resulting in a comparatively flat milk pool totalling 8.6 billion litres nationally.
"The 2022/23 season will be marked by rising numbers throughout the supply chain - from production costs to farmgate prices, from commodity values to food expenditure," Mr Droppert said.
"Meanwhile, labour shortages remain a significant constraint, while high beef prices and soaring land values have enticed farmers and farmland away from dairy."
Australian Dairy Farmers call for milk price transparency
Higher retail prices for dairy are critical for the viability of the sector, the president of Australian Dairy Farmers says.
Rick Gladigau has welcomed yesterday’s record opening prices, with some processors breaking through the $9/kg of milk solids ceiling.
However, the ADF president said skyrocketing fodder, fuel, fertiliser and electricity prices were eating into the margins of most primary producers.
“Clearly there is strong competition from processors in the market, which is fantastic for dairy farmers,” Mr Gladigau said.
“Choice is important and we can see that the dairy code is operating as intended.
“ADF recognises that these opening prices are strong, and we believe there is potential for more increases due to limited milk supply to meet existing contracts both domestic and international.”
The Australian Energy Regulator last week announced average wholesale electricity prices had “at least doubled” in the first three months of this year, with wholesale electricity costs in Victoria set to rise 12 per cent for residential customers, and 10 per cent for small businesses.
“Dairy farmers are still under significant pressure given the drastic increases in the cost of feed, fuel, fertiliser and energy. Consequently, the need for movement in retail prices is critical,” Mr Gladigau said.
“While we continue to see some farmers make a business decision to exit the industry for differing reasons we also expect that this uplift in opening prices will help some farmers confidence to continue to invest into their farms.”
EastAUSmilk co-chief executive Eric Danzi this week urged farmers to closely examine the fine print of milk supply agreements, a sentiment Mr Gladigau echoed.
“We encourage farmers to get income estimations from processors to help them decide which is the best option for their farm,” Mr Gladigau said.
“The quoted opening price may not be the price farmers will receive due to many different factors.
“We’ll be working with the new Labor government to deliver on our election platform, much of which seeks to drive profitability and sustainability through the Australian dairy industry, including even more transparency of prices across the dairy supply chain.”
Dairy farmers ‘squeezed on milk prices’
Dairy farmers say they are being sent to the wall over milk prices, as one NSW farmer prepares to walk away from the industry because of increasing costs.
Six weeks ago third-generation dairy farmer Alan Henry made a big decision to start breeding his herd with beef cattle as he prepares to close the 99-year-old dairy his grandfather started.
Mr Henry, who has been milking at his Numbaa property on the NSW south coast for 40 years, says he is being sent to the wall by the supermarkets.
"We don't set the price, we get told our price.
"We're slogging it out and going backwards.
"The three big supermarkets in Australia have got too much power."
He wants the price of milk increased to $2 a litre, and for farmers to be paid $1.25 of that.
The milk price has increased in the past three years, according to industry group Dairy Australia, and with it the amount farmers are getting paid.
But for Mr Henry production is down 25 per cent due to recent flooding, while his input costs have gone up threefold in three years.
He concedes he will receive $50,000 in flood grants from the processor he supplies to, but says that won't cover his losses.
Sue Boyd, who runs the dairy next door, employs 35 people and is also feeling the squeeze.
"For years we've had to borrow more money to keep going," she says.
"It's always about the consumers and the wage earners, but everyone deserves to be paid properly."
In the four months to April, 1400mm - more than three times the average rainfall - fell at her property near Nowra. With everything waterlogged, milk production is down by 25 per cent.
"It's terrible for the cows,'' Ms Boyd says.
"They're much more likely to get mastitis from the amount of mud and water, and it makes their feet really sore."
While she concedes she is getting the highest milk prices she's ever got, Ms Boyd wants prices increased by at least 50 per cent, to make up for years of low prices.
But things have improved for most dairy farmers since a mandatory dairy code came into effect in 2020, says National Farmers Federation senior economist Ash Salardini.
The code followed the ACCC's 2018 inquiry into milk pricing, examining farmers' concerns over transparency on contract and pricing practices.
"Farmers feel like they're being squeezed ... regardless of what the input cost is, regardless of what the demand is, the retail price stays relative constant," Mr Salardini says.
"The mandatory code has helped."
But he says the retail price of drinking milk hasn't budged in the past 10 to 12 years.
"It's stayed in and around a dollar,'' Mr Salardini says.
"It was $1 a litre in 2010-11 and it's $1.30 now, but when you adjust it for inflation the price has probably come down."
He says collectively the big three supermarkets control more than 80 per cent of the market, and that they still dictate prices.
Australian Dairy Farmers president Rick Gladigau says farmers have been saying for years milk is too cheap.
The South Australian farmer says while other commodities have been going up, milk has not.
"It's back to saying to consumers if you want the good Australian-produced quality product, then sorry but you might just have to pay more," Mr Gladigau says.
But while he would welcome a price rise for milk, he concedes farmers also need to look at their own operations.
"Farmers have to look at how efficient they still are,'' Mr Gladigau says.
"There's no point in saying our processors need to pay more, if they can't get it out of the market themselves."
He says the supermarkets baulk at putting the prices up.
"I reckon they feel there will be kickback from consumers by putting up the price of milk,'' Mr Gladigau says.
"It's considered a staple ... but we've seen bread go up when the price of grain goes up."
On the north coast of NSW dairy farmer Paul Weir, who lost more than half his herd in the floods nine weeks ago, has only just begun milking at his dairy again.
The floods all but wiped out his operation, and he calculated fertiliser, fuel and feed this year would cost him an extra $200,000.
He is one of 281 NSW and Queensland farmers to receive an extra five cents a litre for the next two months from the Norco co-operative, to compensate for the flooding.
"That certainly helps,'' Mr Weir says.
"Is it enough? No it's not ... but it's the first of hopefully many."
It takes the average price per litre of milk paid by Norco to about 84 cents.
Woolworths was the only supermarket to reply to AAP's questions.
A spokesperson says farmgate prices are at record highs and that they have accepted millions of dollars in wholesale cost increases from their milk processors in recent years.
"We offer our customers a wide range of milk at different prices to suit household budgets and we are particularly mindful of cost-of-living pressures for Australian families," the spokesperson says.
"The ACCC has noted that retail pricing strategies are unlikely to have a direct impact on the prices paid to farmers, which are set by milk processors.
"In the last 12 months, our Dairy Innovation Fund has provided more than $2 million in grants to 24 Australian dairy farmers to support on-farm projects which enhance resilience, efficiency and profitability."
Mr Henry says he will decide on July 1, when the new price is set with the processor he supplies to, whether to walk away from the industry.
"All I want is an honest day's pay for an honest day's work," he says.
"Anybody you talk to in the street says they're quite willing to pay more for milk, on one condition, that it goes straight to the farmer."
Dairy leader calls for Woolworths, Coles and Aldi to raise milk prices
Australian shoppers will need to pay two dollars a litre for generic milk in order to keep farms viable, a dairy leader says.
eastAUSmilk vice chairman Graham Forbes said two dollars a litre was still lower than most industrialised countries and below prices set for soft drink and bottled water.
He said historically low prices for milk - a hangover from the dollar-a-litre 2010s — were unsustainable.
“Two dollars a litre for milk is still very cheap. You pay more per litre for soft drink or sparkling water,” Mr Forbes said.
“Throughout the dollar-a-litre years, we were always were pretty reasonable. We’d say $1.40 a litre or $1.50 a litre was about where the price needed to be.
“But the economy has shifted in the past few months. Inflation is running and the dairy industry needs to keep up, otherwise you’re producing milk for hardly any return.
“Labour costs are high due to worker shortages. Fuel, as we all know, is far more expensive than it was at the start of the year. Two dollars a litre for generic milk is still reasonable in the bigger scheme of things.”
The dollar-a-litre milk push was introduced by Coles and Woolworths in January 2011 and lasted eight years until it rose incrementally to $1.10 a litre.
Along with Aldi, Australia’s big three supermarkets quietly increased the price of generic milk to $1.30 just prior to Christmas, although fuel costs have skyrocketed since that time.
A Coles spokeswoman said the supermarket had: “moved to source Coles Brand milk via a direct sourcing model in some regions and therefore, we are able to pay farmers directly in those regions.
“We believe this model delivers fair and competitive prices to farmers, provides greater certainty of income, and allows farmers to more confidently plan for their future,” she said.
A Woolworths spokeswoman said: “We offer our customers a wide range of milk at different prices to suit household budgets and we are particularly mindful of cost of living pressures for Australian families.
“As a result of increasing farmgate price movements, we’ve accepted millions of dollars in wholesale cost increases from our processors in recent years.”
Both Coles and Woolworths pointed to their dairy funding initatives which has provided more than $5 million and $2 million in farm grants respectively.
Aldi did not respond to The Weekly Times request for comment.
The call for milk prices to rise at the checkout is not contained to Australia.
Last week, the head of the UK’s largest dairy company called for British shoppers to pay more for liquid milk.
“(Raising the price of milk is) even more critical by the fact that the costs of producing milk are increasing like never before,” he said.
Milk price on the rise
Dollar a litre milk is well behind us now. It looks like milk price will start following the general laws of economics responding to supply and demand. Last week Woolworths lifted its milk price to $1.30/L on its 2L and 3L bottles.
Coles has since followed suit and lifted their milk price to $1.30/L.
Of course, it is not the first time Woolworths have led the way in raising milk price. Starting with breaking $1/L milk to $1.10/L in February 2019 and later to $1.20/L in the same year.
It is very positive to see the price of milk on the rise, it should flow through the supply chain and lead to a more sustainable industry.
The dairy industry needs to continue to move towards a direction where the whole supply chain makes a moderate margin for it to be viable and worthwhile remaining in the industry. It is necessary for the retail price to rise to allow this to occur.
Australian milk production has been trending downwards in the recent years. This has been due to substantial increases in the cost of production as a result of the drought and more recently fuel and fertiliser prices. It is expected now that as costs increase there can be adjustment to retail prices to allow farmers to be paid a fair price and continue to produce milk.
Improving the margin between the cost of production and farmgate milk price will allow farmers to invest in the future of their business and encourage the next generation to remain in the industry.
QDO thanks Woolworths for its continued leadership in the dairy industry supply chain. This leadership will help create a sustainable industry and a positive future. Dairy farmers would like this trend to continue so that everyone can have a prosperous future.
Brian Tessmann, QDO President