March 2010 edition
Murray Dairy News
Message from the Chairman, Jeff Odgers
Dairy Australia released its first Situation and Outlook for 2010, providing an update in mid-February. Outlined below is a summary of the current dairy industry conditions and the outlook for key factors that affect dairy operation and profits.
- Demand conditions continue to improve in key markets. Inflationary pressures have eased and better economic conditions are helping consumer sentiment.
- Fresh supply of dairy products is stagnating in most parts of the world, which has helped bring the market into better balance.
- All EU export subsidies are now set at zero; and the US has ceased using its export subsidy scheme. Surplus government intervention stocks still exist in the northern hemisphere which will depress the market when they begin to be released.
- Internationally a tightening supply and demand balance has seen spot prices for the major dairy commodities increase by around 80 per cent in US dollar terms over the past 12 months – see graph below:
- However, the strengthening Australian dollar has limited export returns, with Australian denominated prices increasing by just 30 per cent. Another factor slowing the movement of higher farm gate prices to date is the increased lag between the spot market and received FOB returns for actual negotiated sales.
- The RBA lifted its cash rate three times in as many months in late-2009. With further increases likely this will provide further support to the Australian dollar and increase financing costs.
- Domestic grain prices continue at three-year lows. This indicates a favourable milk price to feed grain cost ratio in the second half of the season.
- GM-Water 2009/10 allocations remain the highest in four years, with the Murray system at 63 per cent and the Goulburn system at 56 per cent - compared to 35 per cent and 29 per cent last year. Temporary trade water prices have dropped.
Dairy Australia’s view is that global dairy demand based on continued economic recovery is likely to continue to improve over the course of 2010 in most key markets; albeit at a slower pace.
