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August 24, 2016

Stronger Profits Indicate Market Turn Down Under

 |  By: Mike Opperman

Strong profit indicators from Australian and New Zealand dairy processors today may show the first impact of a global drop in milk production as producers respond to an oversupply that has pushed prices to historic lows.

According to a report published in Reuters, Australia’s biggest processor Murray Goulburn, rival Bega Cheese, Ltd and New Zealand niche processor a2 Milk Company all met market expectations despite a year of falling prices and sluggish demand. Results point toward a potential market pick-up.

Murray Goulburn profits jumped 60% and Bega more than doubled profits over last year. While stronger markets and shorter supplies are part of the reason for the profit upturn, reduced payments to farmers are another. Yet as demand grows, farmer prices should follow.

While this may be an indicator of better prices to come, there is a note of caution. In a recent report, Wisconsin economists Bob Cropp and Mark Stephenson commented on world supplies. “Long run, I don’t see much improvement in world prices until 2017,” says Cropp. But he says large stocks will start to get used up with production down in Australia, New Zealand and Europe and with China showing greater trade interest.

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