Milk Prices Set to Rise Due to Severe Weather Conditions

Flood damage and drought are pushing dairy farmers to seek higher milk prices as they try to offset rising costs. However, these increases may put pressure on household budgets across Australia.

Northern NSW dairy farmers are experiencing their second major flood in four years. The most recent downpour has devastated herds, pasture and vital infrastructure. At the same time, farmers in southern regions are struggling with drought, leading to cross-state hay purchases that are driving up the cost of feed across the country.

The floods have left more than 50,000 people isolated and have submerged entire towns. Winter pastures that were recently planted have been destroyed, raising concerns about the long-term sustainability of dairy operations in the area. Emergency services have been working around the clock, air-dropping feed to isolated livestock in areas that are difficult to reach. Even farms that escaped flood damage have faced challenges with milking cows due to power outages, road closures and feed shortages, which have put the health of cattle at risk.

To recover, farmers will need substantially higher farm gate prices, which are the prices suppliers pay on the farm. Replacing lost cattle, rebuilding damaged infrastructure and replanting pastures are all expected to double regular farming expenses, especially in areas where newly sown land is now unusable. These growing cost burdens make a rise in consumer milk prices increasingly likely.

Across Australia, the impact of these opposing weather conditions, with floods in the north and drought in the south, has reduced the national milk supply. Drought-affected farms in South Australia and Victoria are depending on feed from NSW, causing additional pressure on prices. Supply contracts are due to be set on June 1, and early indicators suggest milk prices will rise significantly at the beginning of the season.

Producers in flood-hit regions, who mainly supply local markets, are still assessing the extent of the damage. Meanwhile, milk from southern farms with export contracts could influence how much prices increase. In contrast, beef markets are expected to remain steady due to strong supply across the country, even with some disruption caused by recent floods.

Source: Australian Financial Review, Bendigo Bank, Rabobank, Milkvalue