18 Jan 2016

Slow recovery in global dairy prices in 2016

National Australia Bank (NAB) Agribusiness is forecasting a slow recovery in global dairy prices in 2016, with ongoing support to local prices to be provided by the weak Australian dollar. Australian dairy export prices are forecast to rise 3.0 per cent in 2015-16 to average AUD 3,482/tonne, and the value of Australian exports to increase by 3.2 per cent.

According to the NAB Agribusiness Dairy in Focus report released during International Dairy Week, international dairy markets saw a tumultuous 2015, driven by weaker global demand, particularly from China, combined with adequate supply of most dairy products.

Dave Davies, NAB’s Regional Agribusiness Manager in the Murray Valley said that Australian producers were shielded from much of the global dairy price tumult in 2015 by a low Australian dollar, and this is likely to continue in 2016.

“The AUD is already off almost 5 per cent against the USD since the start of the year and this will provide support to prices. The AUD is expected to reach as low 0.66 at the end of Q2 2016,” Mr Davies said.”

NAB sees the currency tracking lower in the first quarter of 2016 and we have revised down our AUD/USD forecasts to 0.67 in Q1 2016 (previously 0.68), climbing to 0.69 at the end of 2016 (previously 0.70).

“Australian prices are also likely to be supported by the ongoing international interest in our products. Free trade agreements such as the China Free Trade Agreement will only help this trade, especially if we can operate on a more level playing field with the New Zealand industry.

“Dry conditions and water prices are also likely to be key topic of conversation at International Dairy Week, but NAB’s broader outlook for dairy is very positive,” he said.

The NAB weighted dairy export price indicator started 2015 at AUD 3309.25/tonne, and after some considerable variation, ended a little higher – AUD 3351.68/tonne, and is expected to go approach AUD 4,000/tonne in the fourth quarter of 2016.

NAB’s measure of dairy export prices, based on Global Dairy Trade (GDT) auction results, is weighted by the quantity of Australian exports for whole milk powder, skim milk powder, butter and cheese.

Agribusiness View provides the latest insights from NAB Agribusiness. Visit nab.com.au/agriview to sign up as well as to find the contact details for your nearest NAB Agribusiness Manager.

Important Note: Any advice in this editorial has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.

About NAB Agribusiness

National Australia Bank (NAB) Agribusiness is Australia’s leading Agribusiness Bank and has been supporting Australian farmers for more than 155 years. NAB employs more than 550 agribusiness banking specialists in 110 metropolitan and regional locations Australia-wide. With their local and industry knowledge, our Agribusiness team understand the unique financial and environmental needs of farmers and businesses beyond the farm gate – whether they provide inputs into agriculture or process, distribute or market primary produce. NAB also has a specialist Agribusiness Asia Desk to help Australian farmers make the most of the rapid growth in demand for high quality produce in Asia. We deliver a flexible range of agribusiness products and services by listening to and working with our customers, to tailor the best packages and advice for their businesses. For further information please visit www.nab.com.au/agribusiness.

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