Unlike NZ, most Australian dairy production is consumed domestically with just a third of milk processed by Fonterra Australia exported, lessening their reliance on current weak international markets.
Rabobank dairy analyst Michael Harvey from Melbourne said opening prices for the season were about 7% lower than last season but forecasts for the final payout for Australian suppliers for the 2015-16 season are close to $6.
The final payout for Australian dairy farmers last season was more than $6.
This was the third year Australian dairy farmers had enjoyed stable pricing, underpinned by competition and a large domestic consumer and food service market leading to aggressive pricing.
“There is less exposure to the global market by Fonterra in Australia because of its different market mix and product mix.”
Harvey said the stranglehold of the two large supermarket chains created some difficulty extracting higher margins out of sales of consumer products.
Bega Cheese recently downgraded its profit forecast because it was being squeezed between retail pricing pressure and the milk price.
While NZ farmers may look across the Tasman with some envy in recent years, Harvey said Australian dairy farmers did not share the extreme payout years enjoyed by NZ dairy farmers, driven by unprecedented demand for commodity dairy products.
At these prices he said Australian farmers would be marginally profitable, but with forecasts of El Nino weather patterns, he warned there was a risk the season could be difficult.
Harvey said any recovery of the dairy sector would not occur until early next year when milk flows out of the Northern Hemisphere should start to ease, and even then any recovery was likely to be “modest”.
But international price volatility would continue until China returned to the market.
Meanwhile July contract milk prices offered by one of the UK’s larger dairy processors, Arla, have fallen below 24 pence a litre due to easing international prices.
The UK Farmers Weekly reported prices for Arla’s 3000 farmer suppliers had been steady for much of the year at between 25p and 26p a litre but have fallen in recent weeks.
It was reported that milk production from Arla suppliers had been high, up 2.7% for the two weeks to June 20 compared with a year earlier and, on a three-year average, 5.8% higher.
