GLOBAL dairy prices took a dramatic tumble in mid-August, with 7.5 per cent slashed off the average sale price at the mid-month global dairy trade auction. This brought global dairy prices to lows not seen since 2018. 

Whilst Australian farmers will be paid the minimum price set out in their annual contract, New Zealand farmers will not be so fortunate.

Across the ditch dairy farmers have had their expected milk payout slashed twice for the month of August, with the final guidance for the season settling on a range of $6.00 - $7.50 per kgMS with a midpoint of $6.75 per kgMS.

This is significantly lower than the original opening price given in late May of $7.25 to $8.75 per kgMS, with a midpoint of $8.00 per kgMS.

It is also far below the average of around $9 per kilo of solids being paid to Victorian dairy farmers.

This price is ‘locked in’ with processors required to commit to the season’s minimum price on June 1, pursuant to the Dairy Code of Conduct. 

Whilst the New Zealand dairy pool is highly reliant on international markets, in recent times the Australian milk pool has shrunk so much that the export price has less relevance.

However, as the disparity between what New Zealand processers are paying and the price paid to Australian farmers broadens, cheaper New Zealand products flood onto our supermarket shelves. 

Adding fuel to farmers’ concerns is the recently announced net loss of Bega Cheese of almost $230 million last financial year.

Bega chairman, Barry Irvin, noted there was a disconnect between the global dairy market and the price being paid to Australian farmers.

He has at the same time flagged what everyone is thinking; there will soon be rationalisation in the Australian dairy processing sector.

What this looks like remains to be seen.

However, if one or more processors leave the Australian market and the demand for milk drops, we will have a drop in milk price due to less competition. Will farmers continue to make the same volumes of milk at the lower price?

Unlikely.

The cost of production is not even in the same ballpark as it was the last time a sub $8 milk price was paid.

Where farmers once aimed for a sub $4 per kilo of milk solids cost of production, at current input costs anything under $6 per kilo is efficient.

For many, the basic costs to operate their business are far higher than what was considered the average milk price paid only 3-4 years ago.

To think in 2016 Murray Goulburn went broke paying farmers $5.40, seems a world away from the current costs farmers are facing.