The dairy industry was in a cautious recovery and could be three to six months from a peak, leading dairy analyst, Freshagenda director Steve Spencer says.
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Mr Spencer was guest speaker at this week’s RASV annual International Dairy Week Industry Leaders’ breakfast, in Tatura.
“In the longer term, we are going to see a market which is firm in trend, we will see volatility, caused by some of those changes in weather,” Mr Spencer said.
Europe was coping very poorly with volatility while there were land and environmental constraints in New Zealand, while Australia’s milk production this year was “pretty sad”.
“It’s going to be down seven to 10 per cent, over the season, water supply was excessive in the spring, and we have seen weak, or no margins, which have caused people to contract.”
He predicted the farm gate milk price would end up between $5 and $5.40kg/ms.
“You will see some companies achieve at the better end of that, just because of their product mix, and you’ll see some at the bottom end of that, because of performance issues and lower milk supply.”
He said a farmgate price of six dollars would not be seen, until next year.
“Our stock prices lag actual trades done by dairy companies – the spot market is actually three to four months ahead of actual business.”
Mr Spencer said Australia was still strongly linked to global trends and finely balanced.
“The global market still drives Australia’s milk value, we are still on that roller coaster,” he said.
Mr Spencer said one of the biggest challenges for Australian processors was value capture.
“Margins in domestic markets have been eroded seriously by sacrifice, by a much tougher fast food market, seeking value, huge pizza businesses, which are just seeking cheaper products and there are players who just want to give it to them,” Mr Spencer said.
He said with Murray Goulburn under pressure, there was much weaker milk price leverage, and the ability to put a “stiffener” in it.
“Other companies are now starting to disconnect themselves from MG being the benchmark, and look at what the true market is – we are in an interesting environment,” he said.
Processors would move away from commodities, as they sought to become “more agile and more tailored,” and the other issue to watch was the role of the Australian Competition and Consumer Commission.
Mr Spencer said it was unlikely American president Donald Trump would have a big impact on trade, with his greatest influence on the currency.
“Long term demand is quite good, but it is still quite sensitive, and still quite conditional, there are more complexities out there, affecting the demand response form certain economies, and certainly consumer segments, it’s not there for the taking,” Mr Spencer said.