Milk Value Portal confirms record high Southern region milk price for 2023-24 season

Milk pricing data and Milk Supply Agreements (MSAs) and their contract features for the new 2023-24 season (up to 13 June) are now available on the dairy industry’s Milk Value Portal, providing four years’ worth of current and historical data on the value of raw milk across Australia and new market insights into where opening farmgate milk prices are landing.

This is the first major update since the 2022-23 milk pricing data was released and provides dairy farmers with even greater transparency and understanding on the value of raw milk being paid by dairy processors.

On 1 July, the new milk season will commence, where the new minimum prices offered by milk processors and brokers will come into effect for the agreed term.

In collaboration with dairy industry analyst Freshagenda, this is what we are seeing:

• These are without doubt the highest on record opening milk prices in terms of the announced expected average milk prices that will be paid in the major Southern regions this season, with a weighted average expected price of $9.15/kgMS.
• At the same time last year, the expected weighted average milk price in Southern regions was just under $9.00/kgMS.
• A notable contrast though is that dairy commodity prices are significantly lower (29%) this year than a year ago, while consumer spending is slowing, and shoppers are “trading down” with pressures on household incomes.
• Processors have taken broadly similar approaches to the pricing of milk this season with relatively minor structural changes in milk supply agreements, especially in specific regional price incentives.
• The Milk Value Portals Farmgate Milk Value Tool now contains 2023-24 milk pricing data up to 13 June enabling users to see the weighted average minimum price available for specific farm situations based on regional location, size, seasonality, and milk solids, for the season and that quarter in cents/ litre or dollars/ kg milk solids.

Australian Dairy Products Federation Executive Chairman, John Williams, said that these insights confirm that Australia’s dairy processors will continue to pay extremely competitive prices for milk throughput the 2023-24 season despite the fact dairy commodity prices are significantly lower this year than they were one year ago.

As of 1 June 2023, the Oceania commodity milk value – a forward milk price indicator – was $6.47kgMS versus $9.15kgMS for 1 June 2022, or 29% less. At the same time, the Australian wholesale commodity milk value indicator was $8.28kgMS – 17% down from $9.99kgMS 1 June 2022 (which reflects the disconnect between domestic wholesale prices and Oceania fundamentals due to the shortage in local milk production and major retailer pricing and sourcing practices for private label cheese)[1].

“These are very challenging times for Australian dairy processors. They are competing for milk supply in a shrinking national milk pool, and they are also competing with lower cost product both on the export and on the domestic front. On top of this, they are also contending with exorbitant overhead and input costs, (inclusive of energy, labour, transport and raw milk),” Mr Williams said.

“Australian dairy processors are currently paying in the order of 20% higher farmgate milk prices in Australia compared to New Zealand. This clearly places Australia at a competitive disadvantage not only in export markets, but it is also being reflected on our supermarket shelves with New Zealand made cheese and butter priced significantly cheaper than Australian made products. We know that imported products from New Zealand are up 22% year-to-date (February 2023) and imports from the US are up 46%,” he said.

The realities of the global market and the growing price disparity between Australian and New Zealand farmgate prices is expected to continue, with New Zealand’s new 2023-24 season farmgate prices announced at $7.25-$8.75kgMS (with a mid-point of $8.00NZ/ $7.44AUS), versus Australia’s $9.15kgMS or 23% higher weighted average expected farmgate milk price.

“With these announced prices, dairy processors are demonstrating their commitment to creating a thriving and trusted industry, that will deliver a level of confidence to farm businesses that in turn will lead to reinvestment in whole of supply chain profitable milk growth and will hopefully turn around recent trends.

“Unfortunately, the dairy industry is experiencing year-on-year declines in raw milk production volumes which are forecast to fall below 8 billion litres (or 6%) by the end of the 2022-23 season (compared to 2021-22) – the first time in more than 30 years. This downward trend is forecast to continue in the 2023-24 season, falling a further 3-4% to 7.8 billion litres[2].”

Australian dairy processors are carefully managing a tough domestic trading environment marked by low volume growth, exorbitant overhead and input costs, a decline in global prices and rapid growth in import competition, leaving dairy processors with less margin than ever before.

“It is expected that some processors will need to continue to rationalise their operations, and the flow throughs of this are that jobs, regional local economies and farmers who may no longer benefit from these assets in their region, will be negatively impacted. These are already realities we have witnessed in the past six months. The ADPF remains committed to working with our dairy processor members to affect Government policies and trading environments as they navigate these difficult times,” Mr Williams said.

Through the Milk Value Portal processors remain committed to providing farmers with greater transparency and understanding on the value of raw milk across Australia, aligned with Commitment 5 of the Australian Dairy Plan.

“The Milk Value Portal is a well-established, credible source of primary information that – particularly in the month of June – provides farmers across the eight dairy production regions in Australia with clear price indicators and greater certainty around the upcoming milk price season. The Portal is helping foster better decision-making by providing farmers with insights on milk price and how raw milk is valued in each 12-month production season,” Mr Williams said.

Due to the complexity of contracts, it is important for farmers to fully understand the terms and conditions and what each potential arrangement can offer to their business, including the customised incentives and options offered, such as for volumes and/ or farm locations. Farmers and farm advisors are encouraged to use the Milk Value Portal to help navigate their way through contract conditions, offered farmgate milk prices, and the market factors driving them.

Whilst the Portal will provide unique insights into the value of raw milk in each region, accurate pricing information on expected earnings for the year needs to come directly from the processor of choice by requesting an income estimate for a specific farm.

To view the current seasons MSAs and incentives being offered by dairy processors across Australia, visit here. Register to receive updates from the Milk Value Portal here.

[1] Oceania (NZ export) Commodity milk value (CMV) is calculated based on a weighted basket of Oceania spot prices of major commodities – cheese, butter, skim milk powder (SMP) and whole milk powder (WMP) converted to an Australian dollar-denominated value of milk. ACMV is calculated from Australian wholesale dairy product prices, as distinct from spot CMV (NZ export) prices.

[2]   Milk Value Portal Dairy Market Insights First Quarter 2023 p.5