“Battle between two global dairy giants looms large on the horizon”

Posted by AFN Staff Writers on 11th April 2018

The dairy crisis has been predicted to finally end in late 2018, resulting in a “battle” between Saputo and Fonterra milk processors says Rabobank.

In a new report into the Australian dairy industry, agribusiness banking specialist, Rabobank, says a battle will ensue “as Saputo’s quest to win back milk supply begins and Fonterra maps out further capacity expansion.”

Simultaneously, Rabobank says smaller and newer dairy players will continue to actively recruit milk to secure their share of the milk pool.

Report author, Rabobank senior dairy analyst, Michael Harvey, said these competitive pressures for milk supply, which are likely to intensify next season with Saputo’s acquisition of Murray Goulburn, will translate into higher premiums being passed onto farmers.

“In the global market, while risks loom in the near-term and this is likely to see dairy companies take a conservative approach when opening their prices for the 2018/19 season, the prospects for a gradual tightening in global dairy markets is bright,” Harvey said.

“With the timing of the recovery expected to favour Australia by taking place through our seasonal peak in production.”

Harvey says, based on Rabobank’s latest global commodity price forecast, and assuming a spot currency rate of USD 0.77, the Rabobank forecasts the global market to deliver a base farmgate milk price of AUD5.40/kg of milk solids (MS) in 2018/19 – down slightly from AUD5.60/kgMS.

“However greater competition for milk is likely to bring higher value-add payments to Australian producers – and above those evident this season – with Rabobank forecasting an annual average farmgate range across southern Australia of AUD 5.40kgMS to AUD5.90/kgMS in 2018/19,” Harvey said.

“While the southern Australian export industry often beats the commodity market, it is not always the case. But looking to the past 10 years, the average premium between the base commodity milk price and average Victorian farmgate prices has been around AUD0.40kg/MS,” he said.


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