Water, feed costs eat into farmgate price advantage

Water, feed costs eat into farmgate price advantage

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Australian farmgate milk prices are at levels not seen since the highs of 2013-14 but feed and water costs continue to hit hip pockets.

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Australian farmgate milk prices are at levels not seen since the highs of 2013-14 but expensive feed and water inputs mean the difference between now and then remain vast, a new report has found.

Released today by NAB, Dairy in Focus looks at the interplay between strong farmgate milk prices and high input costs, tough seasonal conditions, and a low Australian dollar (AUD) which have dominated the Australian dairy sector in recent times.

NAB Agribusiness economist Phin Ziebell said both Fonterra and Saputo had stepped-up milk payments to $6.95/kgms.

But he noted input costs remained high and continued to be exacerbated by tough seasonal conditions.

"NAB's feed grain price index for the season to date is at $316/t, which is roughly 23 per cent higher than it was in 2013-14," he said.

"With very low yields this season, we don't foresee much downside here until a decent seasonal break arrives.

"Temporary water prices are elevated, over five times higher in the Lower Goulburn compared to 2013-14, averaging $664/ML for January 2020 to date."

The report indicates seasonal impacts have been very region-specific.

"South-west Victoria, south-west Gippsland and parts of Tasmania enjoyed reasonable conditions for much of 2019, while East Gippsland was very dry, and the irrigation-dependent region of Northern Victoria has faced an extended period of high water and feed prices," Mr Ziebell said.

"Add to this an unprecedented and ongoing bushfire season, which has seen dairy properties lost and others unable to deliver milk due to road closures, and the marginally improved three-month rainfall outlook from the Bureau of Meteorology is most welcome."

Global dairy demand growth has been supportive of prices and NAB anticipates Chinese dairy demand growth to continue.

In terms of production, milk flow for major international producers remains positive, although growth is slower than some had anticipated.

"EU28 milk production is running at the top of its five year range, as is the United States," Mr Ziebell said.

"New Zealand's production is slightly down compared to levels a year ago, but volume risk is very low with production having increased significantly over time. NZ produced 71 per cent more milk in 2018 than in 2000."

Domestic milk production fell to just under 8.8 billion litres in 2018-19, the lowest since 1995-96.

"Better seasonal conditions and easing input costs are needed to arrest falling production," Mr Ziebell said.

"However, our longer term concern is that increased plantings of permanent crops, like almonds, in the Murray Darling Basin will structurally increase the price of water in northern Victoria, which will likely hamper any increase in milk production there."

Tasmania's share of national milk production has almost doubled to 10 per cent in the past 20 years due largely to milder climatic conditions and good water availability.

Global milk prices remain below their 2013-13 peak in USD terms, but this has been largely offset by the weaker Australian dollar, which is expected to keep AUD dairy export prices elevated.

"The AUD averaged 91c in 2013-14, but is sitting around 68c so far this season. Our USD denominated dairy price outlook is neutral, and the NAB house view is the AUD will only appreciate modestly to reach 75c by mid-2022," Mr Ziebell said.

The story Water, feed costs eat into farmgate price advantage first appeared on Farm Online.

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