Milk farmgate prices remain strong with Bega offering a record high opening price

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The Rural Bank May update provides an analysis of production and pricing trends for local dairy producers

Barry Irvin, Bega executive chairman says the 10¢/kg MS step-up and local milk price increase reflected strong global dairy commodity markets

Rural Bank has released its May 2022 update for the Dairy industry at a time when the Global Dairy Trade Index declined a further 8.5% in April to US$1,379 per tonne whilst SMP and Cheddar prices declined by 10.2 and 12.7% respectively.

While on a local basis, Bega has announced an opening price of $8.40/kg MS for the upcoming 2022/23 season alongside a step up of 10c/kg MS.

The outlook for local farm gate prices remains strong as Bega has announced a record high opening price for the upcoming 2022/23 season of $8.40/kg MS.

Expectations are that most producers will receive between $8.20 to 8.60/kg MS.

This was announced alongside a step up of 10c/kg MS for suppliers across Southern Australia. The step up is being retrospectively applied across the full 2021/22 season.  

Barry Irvin, Bega executive chairman said, “The 10¢/kg MS step-up and milk price increase reflected strong global dairy commodity markets and Bega Cheese’s endeavour to ensure it was delivering a competitive milk price.

“Depending on supplier size and supply profile, most of our suppliers will receive an opening milk price in the range of $8.20 per kg milk solids to $8.60 per kg milk solids for our Victoria, south-east South Australian and Riverina exclusive suppliers,” Barry Irvin added.

“As is always the case when setting milk price, it was important that we considered the returns in both the Australian and international markets, the milk requirements for our significantly expanded portfolio of products and the competitive circumstances in each of our regions,” Barry Irvin concluded.

Bega executive general manager of operations Mark McDonald said the 2022/23 opening milk prices reflected the strength of Bega’s broader and diversified branded domestic and international dairy business.

Mark McDonald added, “All exclusive suppliers had a choice of milk price systems that best suited their farming business, that included the introduction of a new flat milk price system to support seasonal supply.

“Broadening the 9/3 milk price system to more suppliers seeking early cash flow signals by including productivity incentives and maintaining a milk price system that supported larger scale and flatter supply profiles,” Mark McDonald concluded.

Rural Bank outlines the highs and lows of the international milk market as local producers relish opening record prices

Meanwhile, lower global prices are largely a result of weaker demand and supply chain issues stemming from COVID lockdowns in China.

US milk production fell 0.5% year-on-year in March 2022 according to the USDA.

The national herd grew by 15,000 head from February however despite this addition, the herd remains 0.9% smaller year-on-year.

This decline is similar in New Zealand with March production dropping 1.5% year-on-year which is the eighth consecutive month of decline.

The first Global Dairy Trade (GDT) auction for May 2022 saw the GDT Index decline for the third consecutive auction.

The index declined by 8.5% from the previous auction to US$1,379 per tonne. This is largely attributed to lower demand from China as it deals with lockdowns which is also affecting supply chains.

Skim Milk Powder (SMP) prices declined by 10.2% month-on-month breaking a run of consecutive gains dating back to the second July auction of 2021. The SMP price now sits at US$4,130 per tonne.

Cheddar prices also saw a similar decline as it dropped 12.7% month-on-month to sit at US$5,652 per tonne.

While there was also a sharp decline in the auction results for April, it should be noted prices remain much higher year-on-year. Cheddar prices are currently 32.2% higher than a year ago while SMP prices are up 20.3%.