Northern Rivers & Rural News

Global dairy markets “teetering on the edge”

Published

2 years ago

9 December 2021

JeffG

Global dairy markets “teetering on the edge”

Global dairy markets are “teetering” at low milk production levels not seen since 2014, Rabobank says in its just-released Q4 Global Dairy Quarterly report.
The agribusiness banking specialist says weather-related issues have decimated peak milk production in New Zealand and Australia, while supply growth has also been stymied in the US and Europe by squeezed profit margins for producers.
This has resulted in a year-on-year global milk production deficit that is too deep to be offset by favourable milk production gains seen in South America, it says.
The report says – after nine consecutive quarterly increases – combined global milk supply growth in the major dairy-exporting regions halted in quarter three this year and will dip into negative territory in quarter four.
Report co-author, Rabobank senior dairy analyst Michael Harvey said combined quarter four milk production in the big seven dairy exporting regions – New Zealand, Brazil, Argentina, Uruguay, EU, US and Australia – is expected to decline by 0.3 per cent compared with quarter four last year. This will be the first quarterly year-on-year decrease since 2019.
The report said farmgate milk prices have followed commodity prices higher worldwide, with more potential upside still to come in some regions. Still, rising costs for inputs, labour shortages, unfavourable weather and questionable feed quality will limit the production response by producers, it said.
Global dairy exports have slowed in response to logistic disruptions, rising transportation costs, and elevated commodity prices.
“Global dairy exports based on product volume ran seven per cent ahead of the prior year during the first half of 2021, but slowed to one per cent in July and August,” the report said.

Chinese demand
Mr Harvey said a slowdown in demand for dairy inputs from China is expected and is needed to cool global prices in the face of limited supply-side increases.
“Chinese buyers are torn between the bullish sentiment outside China and the current weak fundamentals within China to decide whether, when, and at what price levels they should return to the market,” he said.

Inflation pressures
Despite rising inflationary pressures, consumers have yet to face “sticker shock” (where higher prices become a deterrent) for dairy products in most countries, the Rabobank report said, and this is supporting demand. That would not be the case in 2022, it said, as higher commodity prices from the second half of 2021 are passed through to consumers.
In addition, Mr Harvey said, new variants of Covid-19, inflation, labour and logistic challenges, along with others weigh on the global economic recovery with the potential for global dairy markets to “teeter or totter”.

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NZ market impact
A sluggish spring milk production peak in New Zealand – the world’s largest dairy exporter – also contributed to a global supply slow down.
Mr Harvey said New Zealand milk production has only recently started to benefit from more sunshine and warmth for much of the country.
“Unfortunately, the change to more favourable weather was too late for the peak milk month of October, when collections dropped by 3.3 per cent year on year. There have now been three consecutive months of milk supply slipping backward against 2020 since August 2021,” he said.
“Rabobank’s New Zealand milk production forecast for the entire 2021/22 season is -1 per cent year-on-year. In a high milk-price environment and depending on cow condition, it is possible that there will be a late run to recover some of the lost production so far. But our base case assumes the weaker peak will be hard to recoup across the season – especially given lingering challenges to milk production in parts of Canterbury and in addition to high comparables to match from February onwards,” he said.

For Australia
For Australia, the Dairy Quarterly report said, many dairy farms had been dealing with a wet spring – particularly in Victoria and Tasmania.
October – peak dairy production in Australia – saw output down 2.1 per cent below last year. This means season-to-date production is down 2.9 per cent, Mr Harvey said.
Rabobank has lowered its milk production forecast, to -1.8 per cent for the 2021/22 season, back to 8.68 billion litres.
Mr Harvey said dairy companies in Australia’s southern export region are upwardly adjusting their initial (June) announced farmgate milk prices.
“Fonterra Australia and Saputo Dairy Australia both lifted prices to AUD 7.05/kgMS or more. There is potential for further increases as dairy exporters benefit from higher commodity prices, particularly skim milk powder. But there are lingering headwinds for local dairy exporters given the weaker-than-expected spring flush and ongoing supply chain bottlenecks and disruptions,” he said.
Rabobank’s revised farmgate milk modelled price for 2021/22 stands at AUD 7.75/kgMS, underpinned by rising commodity prices and a weaker currency.
“Australian dairy farmers continue to enjoy good margins,” Mr Harvey said “There are, though, production and margin risks beyond the weather, which will remain into the new year. Input costs have spiked for fertiliser and herbicide, with supply risks lurking in the next few months.”
Mr Harvey said high water allocations and healthy soil moisture profiles for irrigated dairy farmers in the southern Murray-Darling Basin will provide good prospects for summer feed crops.
“Rabobank also forecasts another large Australian winter grain crop for 2021/22. This will be welcome news for feed purchases – but noting global prices are supporting local prices,” he said.
The report says Australia’s food market is once again on the road to recovery.
“The Australian economy will grow in 2022, but consumers will face rising costs of living and food inflation including in the dairy aisle,” Mr Harvey said.
Australian dairy exports have remained buoyant through the nine months of the year, according to the Dairy Quarterly. Export volumes are higher across all the major commodities. Liquid milk exports have been strong, underpinned by Chinese demand with volumes 25 per cent higher. Exports of skim milk powder and butter have also performed well.

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Senate Inquiry confirms unconscionable treatment of growers by big supermarkets and Bunnings

Published

3 days ago

15 May 2024

Liam

Senate Inquiry confirms unconscionable treatment of growers by big supermarkets and Bunnings

The NFF Horticulture Council has today welcomed the report by the Senate Select Committee on Supermarket Prices, which reveals the true cost of supermarket power and exploitative behaviour being borne by both Australian households and the national horticulture industry.

Chair of the Council Jolyon Burnett said that while the evidence of price gouging at the checkout has not surprised anyone, there has been shock at the evidence of widespread appalling treatment of fresh produce suppliers.

“What started as an important investigation into supermarket pricing practices on struggling households has also provided widespread examples and growing appreciation of the impacts of supermarket profiteering on the sustainability of Australian fresh produce and nursery businesses and supply chains,” said Mr Burnett.

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“The Select Committee has today reported on troubling testimony from growers, of predatory pricing practices that exploit the perishable nature of fresh produce, the imposition on growers of costs and risks outside their control, and of an almost universal fear of commercial retribution should any objections be raised.

“Not only are growers getting a raw deal with every trade, they’re also left with little profit to reinvest in the productivity of their businesses. Our partners, including transport operators, are also getting squeezed leaving our food supply chain weak and susceptible to disruption.

“But this report is just part of a growing base of evidence that is painting supermarkets and Bunnings in the same light as the big four banks following the Royal Commission into that industry.

“Still unfolding is the Review of the Food and Grocery Code of Conduct led by Dr Craig Emerson, due to report by 30 June, and the ACCC Supermarkets Inquiry 2024-25, expected to table an interim report no later than 31 August with a final report due next February.

“We expect the ACCC reporting in particular to paint a far more vivid picture of unscrupulous supermarket practices given the addition powers of the ACCC to compel evidence and testimony.

The Council has welcomed recommendations by the Select Committee to dramatically tighten provisions within the Food and Grocery Code and attach significant penalties for any breaches.

“These recommendations accord with those already being flagged by Dr Emerson and will work to start levelling the playing field for growers,” said Mr Burnett.

“But it will all be for nothing if the ACCC isn’t appropriately empowered and resourced to act as a tough cop on the beat.

“The incentives and drive everyday within supermarkets and Bunnings to deliver ever greater profits to shareholders at the expense of consumers and growers has to be met, not just by big penalties for breaching the Food and Grocery Code and other Competition Law, but by the very real prospect of getting caught.

“So, along with many customers and supermarket suppliers, the Council is calling on the Federal government in its Budget next week to deliver a substantial, ongoing investment in the ACCC to deliver on its new monitoring and compliance expectations.

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Local News

Refinement of Future Drought Fund welcomed by farmers

Published

3 days ago

15 May 2024

Liam

Refinement of Future Drought Fund welcomed by farmers

Farmers have welcomed an announcement by the Prime Minister and Minister for Agriculture, Fisheries and Forestry in Rockhampton today regarding the next phase of the Future Drought Fund (FDF).

National Farmers’ Federation (NFF) President, David Jochinke, said the FDF was central to making producers more resilient in the face of current and future droughts.

“Supporting long-term resilience through initiatives and programs like those funded by the FDF has never been more important.

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“Having been up and running for several years it makes sense to continually review the FDF and ensure we’re making the most of that investment.

“The Prime Minister being in Rockhampton to make today’s announcement hopefully demonstrates that drought resilience is front of mind for this Government, especially given the dry conditions being faced by producers in the West and Tasmania,” Mr Jochinke said.

Mr Jochinke called out specific areas where today’s announcement aligns with suggestions put forward by farmer advocates and the Productivity Commission.

“We’re pleased to see the continuation of the Farm Business Resilience Program. Sound financial planning is one of the most powerful tools we have to prepare for drought, and we know that program has helped thousands of farmers sharpen up their preparation.

“We’re also pleased to see a review of the Drought Hubs and more investment in overall monitoring and evaluation of the FDF. This is something we’ve called for to ensure we’re seeing tangible outcomes for the sector.

“I know that with Brent Finlay in the Chair at the FDF, that focus on delivering for farmers will be central to that review process.”

Mr Jochinke stressed however that while FDF changes were welcome, the sector couldn’t ignore a range of adverse policies that would be clouding the PM’s visit to Rockhampton this week.

“If the Government was fair dinkum about the resilience of Aussie farmers, it would urgently scrap harmful policies like the Biosecurity Protection Levy or the phase out of live sheep exports.

“It would also stop denying justice to the victims of the 2011 live cattle export ban and settle that long-running class action.

“Giving with one hand and taking with another doesn’t really get us anywhere,” Mr Jochinke concluded.

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Local News

NFF delivers 17 priorities for the Federal Budget to advance agriculture

Published

3 days ago

15 May 2024

Liam

NFF delivers 17 priorities for the Federal Budget to advance agriculture

Australia’s peak farming organisation has put forward 17 investment recommendations for the Federal Government to invest in agriculture and support the sector’s sustainable growth ahead of the budget.

National Farmers’ Federation President David Jochinke said next week’s budget was a chance for the Government to lay the foundation for growth and productivity in a challenging economic environment and when an increasing number of producers are experiencing dry conditions.

“Agriculture has shown a million times over it is a powerhouse in the Australian economy, and by supporting the industry, the Government can help ensure the sector underpins the success and resilience of Australia for decades to come.”

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The NFF’s pre-budget submission provides 17 investment recommendations across three broad themes:

Increasing agricultural productivity
Securing Australia’s agricultural workforce
Promoting and enhancing Australian agriculture’s sustainability

“Our recommendations encompass a spectrum of initiatives, from bolstering regional infrastructure to enhancing biosecurity, fostering innovation in agricultural data to preparing for droughts, supporting farm safety, and creating pathways for the next generation of farmers.

“Key recommendations include investing $1 billion over four years into regional infrastructure to enhance Australia’s international freight supply chains and $2 billion over four years to support complementary measures in the Murray-Darling Basin.

“We also want to see the Government commit to the farm gap-year program AgCAREERSTART, an initiative boasting an 83% retention rate of graduates staying on in agriculture.

“Investing real dollars into these ideas will form a strategic web that intertwines economic growth, environmental stewardship, social wellbeing, and regional resilience.”

Mr Jochinke said the farm sector would be watching closely as the Treasurer handed down the Budget on May 14.

“Last year’s budget contained a nasty surprise for farmers – the Biosecurity Protection Levy.

“We hope the Government has realised it’s much better to work with farmers so we can strengthen a sector all Australians rely on.

“Not only can the government back farmers by supporting our recommendations, the budget is the opportune time to strike a line through harmful policies like the biosecurity levy and the live export ban.

“These are smart and sensible ideas that will allow agriculture to charge on towards its $100 billion goal.”

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