While the local dairy industry has remained buoyant thanks to recent record-high milk prices and export returns, Rabobank's Australian Dairy Seasonal Outlook warns caution as COVID-19 diminishes demand, and prices, globally.
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Rabobank senior dairy analyst, Michael Harvey said the "upward trajectory" milk prices enjoyed in late 2019 had now stalled, with prices falling in the first quarter of 2020 as the pandemic spreads and global dairy fundamentals deteriorate.
Mr Harvey warned a more cautious approach to southern export milk prices was necessary, particularly considering a global market down cycle similar to that of the global financial crisis was now very plausible.
As foodservice and hospitality industries wind back in the wake of COVID-19, the report predicted a sizeable global demand slowdown was imminent, and that the current surge in consumer demand, as supermarket shelves are stripped bare, would be short-term.
"Around the world, in major dairy markets, demand will inevitably fall as unemployment rises and discretionary spending slows," Mr Harvey said.
Australian dairy farmers, could take comfort in the low Australian dollar boosting export returns and domestic market premiums flowing through to help bolster farm gate returns.
Mr Harvey said the ongoing battle for milk supply would ensure there were premiums above the commodity mix on offer in the market, with some dairy farm businesses insulated from the global market downturn thanks to contractual supply arrangements and/or exposure to domestic consumer markets.
He said Rabobank's base case scenario for an annualised southern export milk price in 2020/21 stands at AUD 5.70/kgMS.
The current in-home consumption surge has also supported a short-term boost, with retail price increases working their way through the value chain and reflected in farm gate milk prices.
However, with the Australian economy headed towards recession, he said this demand would be short lived.
As a result of the current global market forces, Mr Harvey said, more conservative opening prices from Australian dairy exporters were warranted, and that dairy farm businesses should budget accordingly.
At the farm gate, better seasonal conditions in 2020/21 would relieve feed costs, while elevated cull cow prices and a buoyant live export sector would also provide opportunity to support business margins.
The Australian milk pool was expected to close out the 2019/20 season at 8.4 billion litres, a 4.9 per cent drop on the previous year, however the report predicted strong growth in 2020/21, pending seasonal conditions, with a 4.3 per cent lift in national milk production forecast.
