Australian farmgate milk prices drop 10-16 per cent on last year

Most processors in southern regions have opened at about $8 a kilogram milk solids (see graphic above).

Processors were required under the mandatory Dairy Code of Conduct to post their prices for 2024-25 by 2pm on June 3.

Market analyst Milk2Market commercial development manager Richard Lange said this year was markedly different from last year .

"There's this real air of caution from the companies," he said.

Processors last year pushed up prices to chase milk.

"They took a bet in the market and were willing to roll the dice and still chase milk," Mr Lange said.

Last year processors anticipated there would be demand for products later in the season.

This year they seemed to be keeping with what they knew they needed in terms of forward customer sales.

"There's not much in front of them that would give them any hope that that's going to be a strong growth at least for the next six months," he said.

Although Global Dairy Trade was up a bit, the situation in China was still uncertain, while in the domestic market, the cost of living was having an impact on cheese, butter and yoghurt sales.

This meant processors were extremely cautious.

"It's clear that they're tightening up from a market point of view and also where they're going to source milk," Mr Lange said.

Some processors had rationalised the number of payment systems offered and some had tightened up the regions from where they would source milk.

Mr Lange urged farmers to get income estimates from processors - and not rely on the quoted average weighted farmgate price.

Milk2Market could run farmers' figures through an income estimator to give them an idea of the best three or four processors to suit their farm production.

He said farmers should be doing their budgets on the lower prices - and not count on any increases in prices later in the year.

Step ups were a market dynamic that had carried over from when co-ops dominated - but companies were under no obligation to pass on any gains they made once farmgate prices were set.

Mr Lange said he expected to see farmers also be more cautious this season.

"The challenge I think is going to be how farmers manage," he said.

"Some of them have taken on a bit of debt this last year or reinvested with some confidence."

But the uncertainty around the season in some areas and cost inputs would mean they were likely to take a 'wait and see' attitude.

"I think the caution from the companies will translate into a more caution on farm," he said.

The prices are broadly in line with forecasts.

In its recently-released Australian Dairy Seasonal Outlook 2024, 'Walking a Tightrope' Rabobank said it expected minimum farmgate milk prices across the south to range between $8-8.20/kilogram milk solids (kg/MS) for the season ahead, down approximately 11pc from current pricing.

Report author, RaboResearch senior dairy analyst Michael Harvey said Australian dairy companies found themselves "walking a tightrope", needing to send strong price signals to milk suppliers, while navigating a backdrop of softer market returns.

"In a market short of milk - and with an ambition to build momentum around the current milk supply recovery in Australia - dairy companies need to present sustainable milk price signals to suppliers in order to remain competitive," Mr Harvey said.

"However, Australia's milk supply recovery is ahead of schedule - with some excess volumes being channelled toward bulk ingredients and commodities, which are under performing in local and export markets - meaning parts of the product mix are loss-making.

"The domestic market is delivering better returns for dairy following a period of hyperinflation across the grocery aisle, but consumers choosing to trade down as a result of cost-of-living pressures is negatively impacting the domestic retail channels."

From now, Rabobank says, any upside to minimum farmgate milk prices will likely come from further global dairy commodity market recovery.

"And this is not Rabobank's base expectation for the next 12 months given the sluggish global market fundamentals," Mr Harvey said.