The Fence

Dairy riding the wave of high commodity prices

At the half-way point of 2021, Australian agriculture appears set for another strong year with the NAB Rural Commodities Index up 2.5% month-on-month in May to now be 6.2% above the same time in 2020.

NAB’s June Rural Commodities Wrap, reports that dairy farmers are among the producers enjoying the flow-on effects of good prices and strong seasonal conditions across many parts of the country.

NAB Agribusiness Economist, Phin Ziebell, said dairy opening prices reflected hot competition among dairy processors.

“Opening prices have been announced, and in the case of Saputo and Fonterra Australia, already stepped up,” Mr Ziebell said.

“Saputo opened at $6.65/kgms and stepped up to $6.85/kgms three days later. Fonterra Australia opened at $6.55/kgms but has likewise stepped up to $6.85/kgms to stay competitive.

“Smaller processors are offering comparable opening prices. Bega opened at $6.80/kgms for southern Victorian suppliers and $7/kgms for northern Victorian suppliers, while Bulla is in the $6.40-6.90/kgms range. ACM is at $6.85/kgms but offering northern suppliers $7/kgms.

“Global Dairy Trade (GDT) auction results have been flat to lower in US Dollar (USD) terms since April this year, but overall, producers should be pleased with the trajectory of both GDT and local indicators.

“Wholesale prices are now at a level in Australian Dollar (AUD) terms to support farmgate prices in the high $6/kgms range, representing a strong return for producers.

“A key pressure for the industry has been elevated feed and in northern Victoria, water costs, however, both have now eased substantially over the last 18 months. While we see feed costs having essentially bottomed out, a return to 2018-19 levels is highly unlikely this year.

“Milk flow has likewise stabilised and the latest forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) put production just shy of nine billion litres in 2021-22.”

Looking at other commodities, cattle prices remain close to record highs and domestic grain prices have now increased in response to a global rally.

“Australian grain remains competitively priced into South-East Asia, and with plenty of old season crop remaining, opportunities abound,” Mr Ziebell said.

“ABARES’ latest estimates for the 2021-22 winter cropping season point to well above average crop, driven partly by planting area, but most importantly, by improved yields driven by good subsoil moisture. ABARES sees a very strong 27.8 million tonnes of wheat this season.

“Price sentiment is likewise strong with domestic wheat futures back above $300/tonne, reflecting strong global demand fundamentals.

“Canola has been an absolute stand-out, supported by a big rally in global oil seeds, while barley prices are a little weaker than growers would perhaps like.”

Wholesale fruit and vegetable prices both gained in May, up 4.5% and 23.7% respectively.

Click here to download NAB’s June Rural Commodities Wrap (PDF).

Source: NAB

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