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Lift in milk price positive

THE big three dairy processors – Saputo, Bega and Fonterra – are tied on opening season farmgate prices at $9/kg of solids, as they battle for supply from a shrinking milk pool.

Canadian dairy giant Saputo initially opened last week with what was the highest farmgate milk price at $9/kgMS – as it tried to regain some of the 1.5 billion litres lost since taking over Murray Goulburn in 2018.

But both Bega Cheese and Fonterra quickly moved this week to match Saputo’s price, wiping out any hope it had of recovering three years of losses.

The full impact of losing supply is set to be reflected in Saputo’s full year results, due out this Thursday, given its third quarter report had already warned “reduced milk availability in Australia negatively impacted export sales volumes as well as efficiencies and the absorption of fixed costs in the Dairy Division (Australia)”.

In response, Saputo has tried offering Australian farmers flat milk pricing for the first time and its existing suppliers a growth incentive, in a bid to lift production.

As a result Fonterra lifted the opening price it announced last Thursday from $8.65 to $9/kgMS this week, to protect a supplier base that its spokeswoman said had grown from 15.4 per cent to 17 per cent over the past three seasons – holding steady at 1.4 billion litres.

United Dairyfarmers of Victoria president Mark Billing said this week’s lift was positive news, but he hoped the price would rise back to the current season price of at least $9.50 by the end of 2023-24.

“The silly season is upon us and processors are setting their prices to retain milk in shrinking milk pool,” Mr Billing said.

Milk2Market commercial manager Richard Lange added: “the expectation was prices would be down 10 per cent” for the coming season, given global markets had dropped 36 per cent since March last year.

“(But) the companies want to be competitive and it will boil down to what they believe they can get out of the domestic market,” Mr Lange said.

“The adjustments this week will be shoring up prices against competitive offers from rivals.”

Milk2Market is due to run milk auctions on June 14 and 28, at which processors and farmers have to lock in contracts, which are likely to give a strong indication of where prices may finally settle.

Farmers have repeatedly told The Weekly Times Saputo did not want to deal directly with them, instead preferring to use brokers or toll process other companies’ milk to maintain their plants’ throughput.

Mr Billing said the feedback he had received was pretty much the same, with a Saputo tanker picking up his milk even though he supplied ACM.

“A big chunk of their (Saputo’s) business is moving milk around,” Mr Billing said. “It would be interesting to understand how much milk is still going through their factories.”

But Saputo Australia supplier relations director Anthony Cook said: “We have always valued our direct relationships with Australian farmers and we know they want long-term partners who will support them in tangible ways to adapt to evolving industry and market conditions”.

“While the overall national milk pool has reduced, Saputo Dairy Australia remains confident about the future.”

Mr Billing said opening prices showed the gap was widening between processors who were more exposed to export markets and those reliant on the domestic front.

Region-specific processors such as Bulla, Union Dairy and KyValley have come out with average prices well above the big three.

But in NSW and Queensland, a yawning price gap has appeared between Lactalis and its rival Norco.

The opening figure from Lactalis is more than $2/kgMS lower than its rival in some northern regions, which farm lobby leaders claim is below the cost of production.

EastAUSmilk president Matt Trace said the “low ball figure” from Lactalis had sent shockwaves through the NSW and Queensland dairy sector.

He said Norco had provided confidence with their opening prices compared to Lactalis.

“There’s anger in the northern dairy sector like I’ve never seen before,” Mr Trace said. “There’s concern that this low-ball figure has been put out there by Lactalis and that they’re going to engage in special deals with certain suppliers and leave other suppliers out in the cold.”

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