Dairy market bottomed as farmers tackle tough times

Wednesday 03 June 2009 | From Dairy Australia

Dairy farmers nationwide are facing challenging times as the global financial situation impacts on world demand for dairy products, and returns to farmers suffer as a result.

Analysis undertaken by Dairy Australia as part of the 2009 Situation and Outlook report released today, shows the international market appears to have bottomed. And while there has been mixed signals in recent international trade indicators, prices are likely to move upwards slowly in the uncertain economic climate.

International commodity prices could move up faster if market perceptions are significantly altered by tightening supply, or a surge in demand due to economic recovery. The end result for farmers in terms of next year’s milk price, however, will be heavily influenced by exchange rate movements. The recent deterioration of the US dollar is of particular concern.

Dairy Australia Managing Director Dr Mike Ginnivan said the financial impact on-farm had been severe.

“It is true that falling input prices have provided some relief, but without significant improvement in seasonal conditions in specific regions, farmers will face severe difficulty in trading through the current downturn,” Dr Ginnivan said.

However, he said the domestic market had remained a bright spot for the industry, with those farmers supplying domestic-focused companies largely insulated from the negative global market.

“Accounting for 55% of annual milk production, the Australian market has offered good value and volume growth, and underpinned industry returns. Higher retail prices have been largely maintained as supply contracts limit the immediate passing on of lower international commodity prices.”

Dairy Australia’s Manager of Strategy and Knowledge Joanne Bills, expects pressure to build on wholesale prices if the downturn worsens.

“Consumers are likely to trade down to lower priced generic products. We also expect contract negotiations will reflect the international market situation, as manufacturers focus more on domestic opportunities due to weaker export market conditions.

This season’s tough times follow two years of sustained high prices where the international dairy market had reached a new plateau.

“In 2008 there were signs emerging that volatility would be a feature of the market outlook. However, as other industries have found, it was difficult to predict the impact of the global financial crisis which spread rapidly from the US. Dairy commodity prices immediately went into a downward spiral,” Ms Bills said.

“Both the US and then EU governments have since intervened in the market. The build up of stocks and the imposition of export subsidies have added to the negative sentiment surrounding the international dairy market.”

However, the medium term fundamentals of the industry remain sound. Australia is well placed to supply increased demand from developing countries, particularly in Asia where the industry is well established as a reliable supplier of safe, high quality dairy products.

For more information and/or interview requests:
Adele Buhagiar, Dairy Australia, phone 03 9694 3894 or 0400 923 221.