Looking for higher milk prices
A BEAM of hope emerged for Victorian dairy farmers this week, with Murray Goulburn announcing a second step up for the season.
After initially learning of decreased opening season prices, many dairy farmers' confidence had taken a dive, with some putting plans on hold to build herd numbers or spend money on capital instrastructure.
But that situation turned around this week for the cooperative's 2500 suppliers, who will now be paid an extra 20 cents per kilogram for protein and 8c/kg for butterfat for the 2012-13 season, taking the weighted averaged to $4.77/kg of milk solids.
Thanks to a reduction in operating costs and amplified supply levels, managing director Gary Helou said the company was now in a position to boost farm-gate prices.
MG are looking to shed $100 million in operating costs and are already half way to achieving that objective, with factory closures and job cuts part of the strategy to become more efficient.
Global milk supplies appear to be levelling out following an excess on the market, which could also be encouraging news for MG suppliers in the long term.
"While market conditions remain volatile, particularly the level of the Australian dollar, there has been some rebalancing of supply and demand for dairy products globally with the drought in the USA a notable factor," Mr Helou said.
"This has seen an increase in the price of some key dairy ingredients in recent months."
He has advised shareholders of a lift in the full-year farmgate price forecast from the previously stated $4.70-$4.90kg/MS to an improved $4.80-$5kg/MS.
But this was largely dependent on market volatility, he said.
Other companies have remained quiet so far in terms of step ups, apart from the Gippsland-based Longwarry Food Park.
Last month, managing director Rakesh Aggarwal told the company's 100 suppliers of a lift in prices, which took its weighted average to $4.73kg/MS. He was confident there were more step ups in the pipeline.
"Definitely there will be more prices rises, but it depends on how the market behaves, but I have no fear of undue movements in the foreseeable future," he said.
At Burra Foods, general manager commercial Dale O'Neill admitted he was feeling confident too.
The company has already notified its 150 suppliers of an estimated closing price of $4.80-$5kg/MS for this season, but the latest forecasts place that price at the higher end of the range.
"We sell predominantly skim milk powder (SMP), and those prices have firmed up since the start of the year," he said.
Price step ups were expected at the end of this month or the beginning of October and would continue until June 2013, Mr O'Neill said.
Over in the south-west, Warrnambool Cheese & Butter chairman Frank Davis was also anticipating an improved market situation in the second half of the season.
While the processor is yet to announce any price increases, the company is holding its annual general meeting today (Thursday) and would be announcing a farm-gate price step up later this week, he said.
Dairy Australia manager strategy and knowledge Joanne Bills said the latest global dairy prices had firmed, but it was uncertain how long that would take to filter down to farmers.
SMP and whole milk powder prices were trading between $US3400-$US3500 on the Global DairyTrade auction, she said.
"This turnaround in supply - due to the US drought - is happening faster than we expected and is driving commodity prices," she said.
But a lag was expected between global prices and those paid at the farm-gate, she said.
"This is a competitive market though and companies will be doing everything they can to pay farmers the best prices possible," she said.
United Dairy Farmers (UDV) president Kerry Callow was pleased to hear about early price step ups at some dairy processors, but admitted more would help out Victorian dairy farmers in getting work done in the peak spring period.
"Certainly factories are doing everything they can to get payments in farmers' pockets," she said.
"But farmers need high prices."
She said producers were doing it tough at the moment, because it was "easy to accrue debt and harder to pay it off".
However she remained buoyant about the outlook for the Australian dairy market over the next 12 months.
"Prices have been increasing and you can grow an awful lot of milk with confidence," she said.