DAIRY Australia has increased its end of year average farmgate price by 10c/kg milk solids, but will not be drawn on an estimated opening price for next season.
The Dairy Australia Situation and Outlook 2010 February update cites uncertainty and volatility surrounding the international market.
Dairy Australia knowledge and strategy manager, Joanne Bills, said an opening price range would not be clear until later this season.
"It is still really early to speculate where the price will be," Ms Bills said.
"It needs to be a couple more months down the track to see how the commodity price is tracking and how the exchange rate is placed in the last quarter of the year."
Last October, Dairy Australia forecast the end of season farmgate milk price of between $4 and $4.30/kg milk solids.
However, following a rise in world dairy prices and indications from major Australian processors of another two milk price step-ups, this figure has been revised to $4.40/kg milk solids or about 34c/litre.
The report also said spot prices for major dairy commodities have increased about 80 per cent over the past year as a result of a reduction in supply.
However, Australian export returns have increased by only 30 per cent, resulting in a lag in farmgate returns.
The strengthening Australian dollar and dairy companies' approach to selling export products has had a negative effect on farmgate prices.
Ms Bills said companies always sold a portion of their product via contract to long-term customers and this was often at a different price to the spot market, leaving the remaining product to be sold on the spot market.
"Spot prices move a lot faster up or down than contracts, which are usually in place for six months," she said.
A drop in production this season has resulted in less milk being available for export, more milk tied-up in contract sales and less available for opportunistic sales on the spot market.
The good news for dairy farmers, according to the report, is that grain prices remain at three-year lows, the European Union export subsidies are now set at zero and the US has abandoned its export subsidy scheme.
The potential for further interest rates rises could hinder dairy farmers in the coming months by providing support for a strong Australian dollar.
Ms Bills said rate rises could also push up the cost of financing and hurt dairy farmers who had to increase their short-term debt early in the season.
She said the fast rise of dairy product prices could hamper demand by turning consumers to cheaper dairy substitutes such as soybeans and palm oil.
Meanwhile, Fonterra announced a milk price step-up to all of its Tasmanian and Victorian suppliers last week of 12c/kg of butterfat and 30c/kg protein.
Fonterra's milk price is now $4.26/kg of milk solids.
The increase will be back-paid to the start of the season.
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