AUSTRALIA’S dairy sector, which had been seeing some positive signs on world markets in recent months, following a very challenging period, witnessed a setback in the latest rounds of selling through the Global Dairy Trade.
Overall, at the forward selling event on Tuesday, January 3, the GDT Price Index was down by 3.9 per cent but that was almost exclusively the result of an over-supply of whole milk powder; the price for which dropped 7.7 per cent.
Other product categories weren’t as badly affected with butter up 0.5%, cheese up 1.4% and skim milk powder (SMP) up 2.3%.
The outlook continues to be strong for SMP, with contracts sold through to July 2017 all showing pleasing rises in prices, up as much as 5.8% for supply in February, to average a 2.3% improvement, on top of sound increases at previous sales.
Supply contracts through from February 17 to July 17 for whole milk powder, however, were quoted down -9.6%, -7.4%, -8.8%, -6.8% and -6.5%, for the average reduction of 7.7% at the sale.
The latest global sales result follows an easing in prices at the December 20 sales event by 0.5%, on the back of some pleasing gains in the three earlier sales for November 1 (11.4%), November 15 (4.5%) and December 6 (3.5%); still within a generally improving trend in world prices from a low point in August 2015.
Notwithstanding the latest easing, Rural Finance’s December 2016 Australian Dairy Update claims the gains, towards the end of 2016, were the good news that Australian dairy farmers were looking for as the Global Dairy Trade Index reached its highest point in almost two years at the December 6 sale.
While the latest update contains some positive news for the dairy industry, it also reports that the recovery of the sector has proven to be a slow one.
National milk production is down by more than 10 per cent year-on-year, as is supply which has recorded a reduction of around 10 per cent per month since the turn of the 2017 financial year.
Dairy exports are also in sharp decline, with the total value of exports for the third quarter of 2016 down 11 per cent on the same period last year, and by more than 8 per cent in total year-on-year.
As something for the sector to consider in 2017, the report highlights the trade relationship between the United States and Mexico, the world’s largest milk producer and the largest importer of US dairy products respectively.
A reduction in trade between these two countries instigated by the new US administration would have significant implications, if the US were forced to look to other markets for US dairy products.
General Manager Agribusiness for Rural Bank and Rural Finance, Andrew Smith, said the fundamentals of the dairy sector remain sound despite the volatility and challenges it continues to face.
“While skim milk powder prices have bounced back this quarter, the Australian dairy industry as a whole still faces significant challenges across the board,” Mr Smith said.
“We are continuing to work with our dairy customers to support them in managing through this difficult cycle. The only constant in the dairy industry in recent years has been volatility, and 2017 will be no different. However, we believe the ability of Australian dairy farmers to manage volatility will win through in the end.”