Negative signs for milk price

24 Oct, 2017 04:00 AM
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FreshAgenda's outlook update also includes a lower forecast price for 2018/19, which has been revised to $5.05-$5.45/kg MS.
Sustained retail discounting of block cheese on the domestic market was dampening commodity returns.
FreshAgenda's outlook update also includes a lower forecast price for 2018/19, which has been revised to $5.05-$5.45/kg MS.

A leading Australian dairy market analyst's forecast range for the 2017/18 average southern Australia farmgate milk price has fallen 10 cents a kilogram milk solids to $5.70-$5.90/kg MS.

FreshAgenda's outlook update also includes a lower forecast price for 2018/19, which has been revised to $5.05-$5.45/kg MS, down 25c/kg MS based on expectations of increased global supplies and weakening commodity prices into 2018.

FreshAgenda director Steve Spencer said the lower price forecast was despite a small improvement in the underlying commodity milk value (CMV) since the company's previous update in June.

Sustained retail discounting of block cheese on the domestic market was dampening commodity returns brought about by sustained high butterfat prices, he said.

FreshAgenda's October outlook said despite elevated prices, butter supplies had remained tight.

The situation had been exacerbated by European Union policy measures that had led to intervention stockpiles of skim milk powder approaching 400,000 tonnes.

This has discouraged SMP production and restricted European butter manufacture.

"Our June milk price outlook noted that butter prices had overshot fundamentals, and we are now seeing values weaken," the outlook said.

Cheese prices have been steady to improved, trading in a tight range.

However, with more European and US milk available and little incentive to make SMP/butter, values could come under greater pressure in coming months.

GlobalDairyTrade auction results have been mixed since June, but trending weaker for most of the period.

Commodity prices in the most

In Australian, supermarket pricing for cheese has been under greater pressure as retailers continue to pursue low everyday

pricing policies (especially in block cheese) to retain and grow market share.

The outlook for the Australian dollar worsened slightly – that is, the Australian dollar is expected to strengthen, according to Bloomberg’s survey of economists.

It is now assumed to average around US78.0c over the 2017/18 season (compared to an average of around 75.0c for 2016/17).

FreshAgenda said it outlook suggests the global dairy market will be oversupplied in aggregate milk equivalent terms, but with different impacts for individual products.

European production is expected to bounce back with higher farmgate prices and lower input costs. "The European spring flush is likely to be significantly higher – meaning more milk is available for manufacturing," the outlook said.

A moderate lift in milk supply in NZ over the 2017/18 peak was also expected, although spring conditions may put this at some risk.

The full report is available at http://www.freshagenda.com.au/wp-content/uploads/2017/10/CMV-and-milk-price-outlook-23Oct2017update.pdf.

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