Insect protein: Rising in popularity for animal feed

While pet food, mainly for cats and dogs, currently has the highest demand for insect protein, a report released by Rabobank, an agriculture banking specialist, found that its high protein factor and low production costs could make it viable for the animal feed market.

Read more

Beer consumption suffered during lockdown

Across the globe, beer consumption suffered from the Covid-19 pandemic in the early stages of 2020. In some countries – such as South Africa – alcohol consumption was restricted, while others – like Mexico – classified brewing as a non-essential activity and ceased beer production.
“In most countries, consumers faced a lockdown and the on-premise channel was closed, creating varying degrees of pain for nearly all brewers,” according to Francois Sonneville, Senior Analyst – Beverages at Rabobank .
“In North America, the overall market has held up relatively well, helped by its reliance on off-trade sales and stellar e-commerce growth. Brewers large and small have proved surprisingly nimble and adaptable – which may lead to notable changes to the on-premise moving forward,” says Sonneville. Craft brewers, who are more dependent on the on-trade, have so far avoided closures, although the winter might impact those dependent on outdoor seating.
Read More: Food fraud being uncovered
In Europe, on-trade markets have been hit hard, especially in tourist areas, and beer
going stale in kegs has caused additional problems. As new Covid cases are on the
rise and the risk of a second lockdown increases, chain integration might help to
lower costs.
Despite a sharp recovery in China, the loss of summer sales will hang over 2020
Asian beer volumes. As China comprises 70% of total Asian beer consumption, it is
critical to recovery. Thailand and Japan have shown smart recoveries in Q3 2020. For
the rest of Asia, specifically, India, the Philippines, and Vietnam, there are mixed

Grain markets look to Australia to fill European shortfall

All eyes are on Australia’s developing winter crop as global grains markets look to Australia to offset a poor European harvest hit by drought, an international grains strategist has told local growers.

Rabobank London-based global grains and oilseeds strategist Stefan Vogel, speaking on the bank’s Australian Grain Mid-season Webinar, said when it comes to wheat and canola in particular, “we are all looking for good crops in Australia to make up the shortfall caused by the poor season in Europe”.

Vogel said after an excellent 2019/20 European harvest where the European Union exported 38 million metric tonnes (mmt) of wheat, this year’s EU export volumes are set to fall at least 10 mmt with most European grain-growing nations – including France, Germany, Poland, Romania and Bulgaria – beset by dry conditions and poor yields. While Ukraine, another  global wheat exporter, is expecting an almost 10 per cent smaller crop than last year.

And this shortfall would remain, he said, even with Russia, “the big guy in the room”, still expected to produce a bigger wheat crop than last year, bring some harvest pressure to recent market tightening.

“So who can offset that shortfall in European production that would be going into export markets? Everyone is banking on Australia to make that happen on the world market because no one else has a whole lot of buffer to make that up. So if we want to keep stable or even growing global export volumes, Australia is actually required to give us a decent amount of wheat on to the world export market,” he said.

For canola too, Vogel said, a poor harvest in Europe will likely see the EU producing its lowest crop since 2006 in the 2020/21 season. And this spells good news for Australia, pushing EU import demand to likely exceed last season’s record high.

This will potentially see Europe double its volume of canola imports from Australia, he said, “Once again in Europe, we have an extremely poor rapeseed/canola crop this year, after suffering the adverse effects of very warm and dry conditions during last year’s autumn plantings and during yield development this April and May. Last year, the European rapeseed crop was bad, but this year the already-harvested crop is even worse.”

Added to this, Vogel said, Ukraine – a country from which Europe usually imports as much canola as is available – will also deliver a diminished crop this year. And Canadian canola – which usually makes up the residual in the EU import mix – is less favoured by EU oilseed processors and canola meal feeders due to its typical GM content.

“So Europe is actually going to need a lot of Australian canola – depending on how much you can ship to us, maybe close to doubling the amount we took last year and getting back to volumes seen in 2017 and 2015 of around 1.9 million tonnes,” he said.

This European supply shortage had been helping to support canola prices, Mr Vogel said, despite temporarily-reduced demand for biodiesel – a key end use for canola oil in the EU market – due to the decline in travel during COVID-19 lockdowns.

“The European price for biodiesel was down during April and May on the back of low demand, but has since largely recovered as we have now chewed through stocks and driving has almost normalised again,” he said. “COVID-19 has clearly hit the prices of canola in Europe, although they are in the meantime still holding above the last few years given improved demand and the extremely poor European crop.”

COVID impacts
Overall for the global grains and oilseeds market, Vogel told the webinar, the immediate effects of the coronavirus pandemic had primarily been felt in the biofuel sector, as well in malt and cotton.

“Clearly we’ve seen with the lockdowns, people were not driving as much to go out or go to work, so the demand for biofuels as a whole suffered. And the same is true for malt where food service and hospitality was closed for the most part and sporting events were shut, so people weren’t consuming the same volumes of beer,” he said.

“And for cotton, people have not been buying as many clothes because they have not been going out or to the office as much, but instead stayed home.”

Vogel said the bank predicts recovery in all these sectors in the next 12 months – albeit potentially not fully, but to “between 85 to 95 per cent of normal levels”.

For the feed grain sector – which, along with food grain, had been relatively unscathed by the effects of the pandemic so far – the impacts of COVID-19 may become more pronounced in the coming 12 months, he said, as the economic downturn triggered by the coronavirus resulted in reduced meat consumption in developing countries.

“We are actually thinking this could get worse in some countries where reduced incomes may see consumers not being able to afford as much meat as they normally consume. We have to consider if there will be a reduction in meat demand and therefore a reduction in livestock feed demand,” he said.

Australian outlook
Rabobank Australian senior grains and oilseeds analyst, Cheryl Kalisch Gordon, told the webinar the bank maintained a positive outlook on the year ahead for Australian grain growers.

While Rabobank had slightly revised down its forecast 2020/21 wheat production to 25 million tonnes due to dryness in some production areas, Dr Kalisch Gordon said Australia would be back as a significant player on the global grain export markets this year.

“With production prospects higher for grain growers in most areas, it will be a year that will start to make up (although not entirely) for the troubling years we’ve had recently,” she said.

In terms of pricing, Kalisch Gordon said, “basis was always going to be moving down from the highs of recent years, which had been fuelled by drought-driven supply shortages”, however prices were expected to find a level of support from the rebuilding of grain stocks needed in Australia.

For wheat, while prices were expected to come in below the current five-year-average – which has been elevated by some ports recording AUD450/tonne wheat for extended periods during the drought – prices should be above the 10-year average.

In addition, she said, growers, particularly those in the eastern states, had a greater – and increasing – capacity for grain storage than in the past, and therefore more capability to avoid harvest sales.

“Added to this, our house view is the Australian dollar will be closer to 64 to 65 US cents by the end of the year and harvest period, and therefore a correction from the higher level it is now at,” she said. “Plus we’ve also had fairly favourable input pricing, especially the cost of urea, which is helpful in boosting yields and protein levels.”

Barley – which typically accounts for between around 20 per cent of Australian farmers’ cropping programs – was going to be “less easy to deal with”, she conceded, with the challenge of finding new export markets to replace being shut out of the main Chinese market due to recently-imposed trade tariffs, and with global stocks high.

“Moving our barley is going to be tricky. The capacity for the barley price to find strength is really going to depend on how farmers hold barley for that feed grain complex in Australia,” she said.

“But globally there is still an animal proteins deficit, so feeding stock isn’t going to be a bad outcome, especially if you are a mixed farmer.”

Sweet outlook for global sugar markets

Having endured the full brunt of COVID-19’s disruption – decreased consumption, distribution hold-ups, plunging oil prices and diving commodity prices – the global sugar industry is now looking towards recovery, according to Rabobank’s latest global Sugar Quarterly report.

As lock-downs ease and foodservice resumes, world sugar prices are starting to rebound, with the ICE #11 Raw Sugar futures finishing the third week of June at 12.18 USc/lb, almost a three cent recovery from April, when prices dropped to as low as 9.21 USc/lb.

And in Australia, domestic prospects are also on the improve – a favourable season driving production, elevated 2020 regional premiums helping buoy margins, and prospects of a low Australian dollar bolstering export opportunities, the bank says in its report for Q2 2020.

Rabobank commodity analyst Charlie Clack said the bank had now lowered its forecast for global sugar consumption for the year ending October, from flat to a one per cent decline – largely driven by the pandemic’s impact in countries such as India, Indonesia and Brazil.
As a result, he said, this would see global sugar stocks declining by less than previously forecast – Rabobank now anticipates a smaller global deficit of 4.3 million metric tonnes raw value through the 2019/20 (October to September) season, revised from its previous estimate of 6.7 million metric tonnes raw value.

“Looking ahead, we expect consumption to recover from the pandemic and go back to trend growth in 2020/21, resulting in a 1.7 per cent increase, and for global production to increase by almost five per cent, driven by a recovery in India and North American crops,” Clack said.

Assessing COVID-19’s impact on global consumption
MClack said sugar consumption during COVID-19 restrictions varied across the world and, although food service outlets were now re-opening, demand was unlikely to return to pre-COVID-19 levels in the near-term.

In the EU and UK, he said, the loss of demand in the beverage and dairy sectors, and overall negative economic impact on purchases, had weighed heavily on the sugar sector.
Strict COVID-19 restrictions across India had also led to a drop in 2019/20 consumption of 3.4 per cent, year-on-year.

“While we anticipate a sharp drop in India’s food service sales and consumption in quarter two 2020, this is also a key period for sales of ice-creams, beverages and other sugary snacks,” Clack said. “Rabobank forecasts a recovery in the 2020/21 season in India as behaviours return to a ‘new normal’.”

In North America, the pandemic appears to have had less of an impact on consumption – with the higher usage of high-fructose corn syrup, rather than sugar, in soft drinks minimising the decline of sugar demand in beverages in the US and Mexico.

Looking ahead, MClack said it was broadly agreed that COVID-19 would negatively impact 2019/20 global consumption, but the full extent was very much unknown.
“Potential “second-wave’ infection events, the longevity of social-restrictions and the severity of a global recession will all play into consumption, as will consumer behaviour,”
he said.

Global sugar production outlook
Global fundamentals should take higher priority for sugar markets, Mr Clack said, as the southern hemisphere crush gains pace, and Asian cane crops are underway.

He said India’s 2020 monsoon season was on time, and at pace, with the favourable season contributing to predicted increase in production – the report forecasting Indian 2020/21 production at 33.5 million tonnes, up 16 per cent year-on-year, if realised.

Indian exports were also strong, despite port congestion and labour issues. In Brazil, port congestion was set to ease, Mr Clack said, better positioning the country to distribute a bumper harvest.

“Dry weather has permitted a flying start for the centre/south harvest in Brazil, and by the end of May, 145 million tonnes of cane had been harvested, versus 129 million tonnes at the same time last season,” he said. “As expected, progress to date shows a pronounced swing to sugar production this season, with 46 per cent of cane going to sugar production over ethanol, versus 33 per cent last season.”

With the 2020/21 Thai cane crop suffering a poor season due to drought, Mr Clack said the impact was compounded by a likely year-on-year cut in domestic acres, and a lower availability of irrigation water.

As such, he said Rabobank expected Thai sugar output to reach just 8.15 million tonnes, down five per cent year-on-year and 47 per cent from 2018/19.
“Overall, easing Brazilian port congestion, coupled with flowing Australian and Indian raw sugar is forecast to keep 2020 ICE #11 prices confined to the 10.5-12 USc/lb region, however, we cannot rule out the influence of energy markets, FX and speculators when looking ahead,” Clack said.

Australian outlook
With the 2020 crush now underway in northern and central Queensland, with southern and NSW mills scheduled to begin in coming weeks, Mr Clack said, wet weather delays had dampened early progress in the Burdekin, Herbert and Tully regions.

As a result, crushing pace was some 20 per cent behind last season and 51 per cent behind the 2018/19 season. And with above-average rain predicted over coming months, he said, a slow 2020 crush – and a late-season finish – was expected.

However, Mr Clack said, the favourable season had much improved yield prospects, with Australian 2020 cane production expected to reach 31 million tonnes, up one million tonnes year-on-year.

Australian sugar production was forecast to reach up to 4.4 million tonnes, up marginally from 2019.

“While 12-month expectations for the ICE #11 are subdued, below 12 USc/lb in the 12-month period, demand prospects in Australia’s major Asian export markets – namely Korea, Japan, Indonesia – following COVID-19 lockdown will be keenly watched as the new crop flows and is supported by our low Australian dollar,” Clack said.

He said the risks of COVID-19 disruption to the Australian crush remained low, following the industry’s implementation of measures to prevent virus transmission, as well as a low national infection rate.

Strong domestic cattle market to counter global pandemic

Opposing forces will dominate the Australian cattle market in 2020, with limited supply and strong local demand driving prices, but tempered by the global COVID-19 disruption, according to Rabobank’s Australian Beef Cattle Seasonal Outlook.

The just-released report, titled The Battle of the Bulls versus Bears, outlined that despite the market being seriously tested by contracting global economic growth and COVID-19 containment measures, domestic forces would emerge victorious, keeping cattle prices high.

Rabobank senior animal proteins analyst Angus Gidley-Baird said widespread rain had buoyed local restocking motivation among producers, reducing cattle sales and adding buying competition in an already supply-constrained market, with Australia’s cattle inventory reportedly at a 30-year low.

“We estimate the Australian cattle slaughter will fall 14 per cent in 2020 to 7.29 million head, with a further decrease of two per cent in 2021,” he said.

Production was expected to drop to 2.1 million tonnes – among the lowest volumes seen in 15 years – with seasonally-driven increases in slaughter weights failing to offset reduced numbers. While price-positive for graziers looking to sell livestock, Gidley-Baird said low cattle availability would create challenges for producers, processors and feedlots, forced to manage their businesses with lower livestock numbers and high cattle prices.

Low slaughter numbers were also expected to contribute to a dramatic decline in Australian beef exports, forecast to drop 17 per cent in 2020 to one million tonnes. The significantly decreased cow slaughter – reducing Australia’s production of lean manufacturing beef – was also expected to result in a shift in volumes between export markets, Gidley-Baird said.

“The US is a large market for lean manufacturing beef – 62 per cent of exports to the US are manufacturing beef – and, all other things being equal, we expect exports to the US to drop in 2020,” he said.

Forecasts suggest a dramatic contraction in global economic growth in 2020 resulting from COVID-19 that will be worse than experienced in the global financial crisis (GFC) of 2009, with large economic declines expected in key Australian beef markets such as the US, China and Japan.

As a high-priced protein, Gidley-Baird said, beef would feel the impact of reduced consumer expenditure, with overall beef demand – particularly for premium products sold through full-service restaurants – expected to decline. Heavily reliant on foodservice trade, Australia’s beef exports would also be hit by COVID19-led social restrictions, particularly in China, where more beef was eaten out of home.

“This disruption to food service and slowing economic conditions is expected to place downward pressure on Australia’s beef export prices, creating a difficult price squeeze for those in the beef supply chain managing high cattle prices in a softer global market,” he said.

At the same time, Gidley-Baird said, a weaker Australian dollar, China’s reduced pork availability due to African swine fever, and the US-China trade deal were all positive offsetting factors.

Domestic price outlook Despite countering global and domestic forces at play, the report forecasts the average annual Eastern Young Cattle Indicator (EYCI) to increase by 30 per cent in 2020, to equal the annual average record set in 2016 at AUc632/kg. Based on the last reported EYCI price of AUc741/kg on March 19, this would mean prices were expected to ease but still remain strong over the remainder of the year.

However, given the forecast dramatic reduction in economic activity, uncertainty remained surrounding global beef price performance. Australian regional outlook With climatic conditions taking a toll on northern cattle herds in past seasons, breeding inventory across Queensland and Northern Territory was estimated at a 20-year low in late 2019.

Gidley-Baird said breeding numbers in some areas of southern Queensland were expected to be 75 per cent below normal, yet, despite tough conditions, well-priced sales had generated solid returns, placing producers in a strong position to start the recovery. As such, the report tipped Queensland would emerge as the “colosseum” of the Australian cattle recovery.

“Producers, feedlotters, processors and live exporters are all vying for a very small pool of cattle, and prices in Queensland may see some of the strongest gains across all states given this fierce competition,” Gidley-Baird said.

Breeding cattle numbers were also significantly down in central and northern New South Wales, while higher breeder numbers and calf availability out of the south of the state remained closer to normal.

He said Victorian producers remained well-positioned to capitalise on national restocking demand and higher prices, with most areas – east Gippsland excluded – maintaining close to normal breeding numbers.

In South Australia, producers could also look forward to a positive year, despite 2019’s dry conditions and reduced cattle inventory in the northern pastoral country.

“There may be slightly softer demand by local producers for replacement cattle, compared to NSW and Queensland, but these markets will still provide strong buyer interest for South Australian producers looking to sell cattle,” he said.

Dry conditions across much of Western Australia’s cattle-producing regions had driven increased slaughter rates, and would curb 2020 production, Gidley-Baird said, however upward price pressure would come from east coast demand. In Tasmania, current breeding cattle on-farm numbers were similar to early 2019, reflective of normal levels, yet increased competition from the mainland could see the movement of cattle out of the state.

Softening the COVID-19 disruption risk

Increased use of precision agriculture practices and other workarounds can play a key role in softening the impact of potential agricultural input shortages due to COVID-19, agribusiness specialist Rabobank said in recent research.

As the nation’s grain growers begin sowing the winter crop – in some of the most favourable seasonal conditions experienced in recent years for many – optimism has been tempered by concerns the coronavirus pandemic may restrict availability of supplies of some imported agricultural chemicals and fertilisers.

Rabobank agricultural analyst Wes Lefroy said while the bank’s research indicates adequate supplies of agricultural inputs – including urea and agrochemicals – would be available in most instances, in cases where there were supply shortages, satisfactory alternatives or workaround strategies could be adopted.

These include the expanded use of precision agriculture practices, such as plant and soil testing and variable rate application.

“While global farm input supply chains are operating at near-full capacity, the risk of interruption still remains high”, Lefroy said. “The source of this interruption may be at production, or moving the product by road or at the port.”

Despite earlier concerns regarding the availability of agrochemicals, Australian growers have generally been able to access adequate stocks to begin seeding. However, more recently, urea imports have become an increasing concern to growers, particularly those looking to make the most of the first favourable soil moisture they have seen for some time following good rainfall and on the back of a promising outlook for the season ahead, Lefroy said.

“In the event of major disruption to supply which causes shortages of either fertiliser, including urea, or agrochemicals, we see a number of ‘work arounds’ for growers to consider,” he said.

Precision ag and work-around strategies
In particular, Lefroy said, grain growers would benefit from expanding precision agriculture practices this season.

“In light of a potential reduction in the availability of inputs for this season, we consider the full use of available precision agriculture practices will help growers maximise ‘bang for their buck’. This includes soil testing, plant testing and variable rate technology to ensure maximum efficiency of ag chemical and fertiliser usage,” he said.

Lefroy said following a below-average crop for many farmers across the country last season – and in some cases for multiple past years – residual nutrients in the soil were likely to be higher than usual heading into the new season, allowing for lower rates of fertiliser application.

“In addition, a wet summer will have driven greater mineralisation of nitrogen in the soil,” he said. “So both of these factors mean, in some cases, additional nutrient requirements may be lower than usual.”

Lefroy said growers’ planting intentions may be altered according to the suite of chemicals and fertilsers available to them. “In particular,” he said, “early-planted crops, such as canola may be most at risk of substitution in favour of cereals, which can be planted later in the seeding program, when inputs arrive.”

Assessing alternative weed management strategies should also be a consideration. “Depending on the availability of particular chemicals, some growers may be forced to change the suite of chemicals used on a crop,” he said.

Lefroy said growers would be prudent to maintain regular contact with suppliers about the availability of ag chemicals in their region and to consult with their agronomists about “plan B and plan C should adequate ag chem and fertiliser not be available”.

With most of the season’s phosphate requirements already on farm, all eyes are on urea – both in terms of import volumes and prices – ahead of nitrogen application during winter and spring, Lefroy said.

“We are now heading into the key importing period for urea in Australia,” he said. “On average, 60 per cent of our yearly imports of urea arrive on Australian shores during the April-July window. And Australia typically imports 90 per cent of its total urea requirements, so we are heavily reliant on global supply chains.”

To date, Lefroy said, production and logistics were operating with little interruption in Qatar and Saudi Arabia – Australia’s two largest sources for urea imports.

“And, in a scenario where supply was interrupted from the Middle East, sufficient alternative urea would be available from China, Indonesia and Malaysia – with whom we also have a strong trading history,” he said.

In terms of pricing, after an 11 per cent bounce in global urea benchmarks (FOB ex-Middle East) during late Feb and early March, prices have since retreated seven per cent in USD terms, and lie well below the five-year average.

”Chinese urea production has also increased to 70 per cent utilisation after the COVID-19 shutdown period in China. So, as the domestic spring peak finishes, we expect China to have more urea available for export which will weigh on global prices,”  Lefroy said.

However, despite favourable global prices, Australian growers should expect to pay slightly more than they budgeted for fertiliser this season, Lefroy cautioned, due to expectations for a sustained lower Australian dollar.

“Taking into account the currency impact, local prices will remain slightly above average for the next three months,” he said.

Lefroy said while not forecast by the bank, a scenario where there was a significant disruption to global or local urea supply chains which prohibited arrival of product, remained a potential risk in the current circumstances.

“If this were to occur, it would bring some significant upward movement to local prices, which will be amplified if we saw favourable rainfall conditions accelerate demand,” he said.

Ag chemicals
For agricultural chemicals, Rabobank said, a “perfect storm” had impacted some supplies – especially for glyphosate and trifluralin – with a combination of pre-existing lower production and higher local demand being compounded by disruptions to production and logistics in China due to the coronavirus pandemic.

“Prior to COVID-19, the ag chem supply chain was already under severe pressure,” Lefroy said. “This was due to a couple of factors. From 2017 to 2019, China cut agrochemical production by 44 per cent due to a combination of tighter environmental regulation and the Chinese government addressing domestic over-supply issues.

“With China supplying approximately 90 per cent of Australia’s agri chemicals, this lower supply was compounded by an increase in demand sparked by significant rainfall in early 2020, diminishing stocks held by local retailers.

“Then on top of this, COVID-19 has caused disruption to production and logistics in China, which added an estimated three to five-week delay on stock coming into Australia.”

However, current observations are that Chinese ag-chem production is ‘ramping-up’ and logistics chains have started to move supply out of China to export markets, which will help address shortages, according to Lefroy.

“In the past couple of weeks, a number of major suppliers have reported arrival of new shipments and product on the water,” he said. “Some retailers have more stock than others and this varies from region to region. In the majority of cases, growers will have enough inputs to commence sowing as planned.”

Dairy to tread cautiously through COVID-19 challenges

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.

The full impact of COVID-19 on the global dairy market remains unclear, however the report – titled A Global Storm is Coming – said the worst was yet to come.

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.

Based on this current global trend, 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,” Harvey said. Spring flush in the northern hemisphere, where milk production had gradually gained pace, would also add to the supply and pricing pressure.

“We forecast modest growth through the spring flush, but, at a time when dairy demand is expected to be considerably weakened, this could have significant consequences on global pricing,” he said. Under the worst-case scenario, demand would significantly weaken, inventories would build up across supply chains, and dairy commodity prices, particularly in Europe, could fall a further 10 to 15 per cent from April 2020 levels.

Under this scenario, the report predicts the commodity farm gate milk price for 2020/21 across the southern export region may sit at 5.20/kgMS. Australian dairy farmers, however, could take comfort in the low Australian dollar boosting export returns and domestic market premiums flowing through to help bolster farm gate returns.

“The Australian dollar is likely to be lower than it was during the global financial crisis, an almost unprecedented fall that will be a game-changer for the Australian export sector, helping support farm gate returns in 2020/21 and proving key to preserving farm gate milk prices above breakeven levels,” he said.

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 $5.70/kgMS.

“For these farm businesses, it will take longer to reflect global price movements, while a branded consumer market will also provide a safely net during the 2020/21 season,” he said.

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, 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.

“There’s been a period of lower margins, which we expect will continue through the coming season, so dairy farmers will need to carefully consider the financial merits of rebuilding equity versus major investments and/or expansion projects,” he said. “However we do predict margin respite coming in the form of a return to growth in milk pools, better plant utilisation and signs of ‘peak competition’.”

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.

Harvey said the Australian dairy industry must equitably reverse the downward trajectory of milk production over a period of multiple seasons, with supply chain fine-tuning along the way.