Lower Prices will be a Disaster for Farmers and Milk Production

It is extremely disappointing to see opening prices announced this week down by around $1-$1.50/kg milk solids (8-11c/L). Processors, via their representative body ADPF (Australian Dairy Products Federation), have been talking down farm gate prices for the last year.

The vast majority of Australian milk is sold domestically including around a third going into milk bottles. So it is hard to understand the obsession of some milk processors and ADPF on exports and using this to drive down farm prices.

Farmers in Victoria and other areas which are on 1-year contracts will bear the brunt of lower milk prices in addition to the very dry conditions in Victoria and other areas.

Most dairy farmers in Queensland and NSW are on 2-5 year contracts that do not expire until at least mid next year. So in the short term prices will not change for most of our farmers. However, the lower prices announced will send a shiver down the spine of dairy farmers everywhere. Any farmers who are off contract need to shop around and compare prices from all processors.

If prices do not increase significantly in the next month before contracts are finalised, then milk production will fall massively in the next year and almost certainly fall below 8ML nationally. Processors will get their way to drive down price, but production which will likely never recover. Farmers need confidence in the industry and this will only occur if processors commit to stop dropping prices.

This is a ridiculous and dangerous outcome, driven by short-sighted decision-making amongst processors. It was just six months ago that a Commonwealth Parliamentary report on food security said dairying is in trouble and needed a stand-alone strategy to build reliability of supply, and here are the processors, led by Australian Dairy Products Federation, already actively trying to cut milk supply in the interests of delivering excess profits next year. If the Commonwealth adopts that report, they’ll have to work out what to do about this bad behaviour.

Joe Bradley, eastAUSmilk President

Milk Price Increasing Painfully Slow

All processors have now released their starting milk prices for 2023/24 and both Bega and Lactalis have increased their price very slightly since. It is disappointing that prices have remained low and no processor appears keen to lift the price significantly to make it attractive for farmers to sign a contract. It is unclear why this is, but it appears that keeping the farmgate price low is more important to processors than picking up milk. It appears Norco has already signed a significant number of new suppliers while it doesn’t appear that Bega or Lactalis have signed many to date.

It is very difficult to tell what the average price is likely to be for each processor since all processors have an incentive to make their price look as good as possible rather than report accurate numbers. However, it is likely that Bega, Lactalis and Norco are all between 88 and 90c/L.

What is very clear is there are significant variations for individual farmers between processors due to different payment systems. This variation could be up to 6c/L on some farms which is an astonishing variation. As a result, it is extremely important for all farmers to get estimates of all processors before making decisions about their future.

All processors have moved to multi-year contracts now which will stifle milk price increases in the future. However, this makes it even more important for processors to compete for milk now and secure all the milk they can since they will not be able to attract milk for at least 2 years in the northern market.

It will be interesting to see if any processors make a decisive move re price to attract farmers signatures. Many farmers are waiting for this to occur and are unlikely to sign any contract until this happens.

Eric Danzi, CEO eastAUSmilk

Has the dust settled on the milk supply contracts?

There has been a real frenzy of activity across Australia in the past month with all processors attempting to secure milk. Milk production is down across Australia and all processors are short of milk. There have been daily announcements re milk price increases, and this may continue in early July.

In Queensland, the last price increase announcement was by Bega (and DFMC) on 1 July although many are unaware of this. Of the 3 major processors Bega (and DFMC), Lactalis and Norco it would appear that Bega (and DFMC) are now on average paying the most for milk at over 88c/L. Lactalis is around 1c behind and Norco probably 2-3c behind on average.

However, averages mean very little and as I have mentioned continuously over the past few months every farmer coming off contract need to get income estimates with the same realistic assumptions off all processors to see who is paying the most for their farm.

There are still likely to be some farmers who change process during July. Some will exercise their 14-day cooling off period as processors continue to change prices. And some farmers will utilise the ability to supply uncontracted for 30 days before making a final decision.

So, as it stands now, how many farmers will change processor in Queensland this year? At least 10 farms will and probably closer to 15. This probably only represents about 10% of all farmers in southern Queensland who are off contract and can move processor. Although this is not insignificant, it is a disappointing outcome since many other farmers would be able to get a higher price by changing processors but for whatever reason have chosen not to do so.

If you haven’t checked your price with other processors, please do so today. Even if you have signed a contract, if it was within the last 14 days you can get out of that contract to sign with someone else paying a higher price, so it is not too late.

Eric Danzi, Co-CEO eastAUSmilk

Farmers need at least a 10c/L increase on 1 July

There have been massive increases in costs in the dairy industry over the past year as there have been across the broader economy. Large increases in the cost of fertiliser, fuel, chemicals and labour has had a substantial effect on the cost of producing milk both for farmers and processors. On top of this, many dairy farmers (and processors) have been very badly affected by flooding and continual wet weather putting further pressure on profitability.

So what does all this mean? From a farmer perspective, it means that for the majority of farmers cost have probably gone up by between 10 and 15c/L.

There continues to be farmer exodus from the industry on a weekly basis and there are no signs of this slowing down without a major shift in price. Production across Australia is down by 3% so far this financial year and processors are desperately short of milk.

Dairy farmers are not whinging for more money knowing that they will still continue to produce milk. Dairy farmers on mass are waiting to see what price increases will be offered before deciding whether to continue producing milk. There are plenty of attractive options for dairy farmers now besides just continuing to produce milk for little or no margin. The returns from beef are extremely strong and there is the opportunity to grow and sell crops rather than feed them to cows. Options to sell or lease farms are also attractive.

It is very positive to see some processors paying additional money to farmers in May and June this year in light of the substantial financial pressures on farmers. However, a 5c/L increase on 1 July would not even come close to what is required.

The bottom line is that if farmers don’t receive at least another 10c/L, it is very likely that the shortage of milk will increase. And it is much harder and more expensive to attract farmers back into the industry then keep them there by offering an attractive price to stay.

Eric Danzi - Co CEO, eastAUSmilk