FARMGATE milk prices will be lower next season because of the softening of global commodity prices, according to Rabobank senior dairy analyst Michael Harvey.
Mr Harvey said the latest Global Dairy Trade results, which dropped 8.9 per cent yesterday, plummeting to its lowest levels since March 5, 2013, were borne out of an oversupply of global milk.
A Rabobank Dairy Quarterly Report for the second quarter of 2014 stated international milk supply would rise in early 2014 because of high milk prices and falling feed costs.
And while Mr Harvey said the drop in trade had been expected, he didn't envisage a dramatically reduced milk price for the 2014-15 season.
"I think the fundamentals are still pretty sound to support the market remaining at elevated levels, but with a bit of easing in pricing," he said.
However, a drop in value of the Australian dollar may offset the impacts of lower commodity prices, Mr Harvey said.
Currently one $A equates to US93c, and while the $A is up 1.7 per cent against the greenback since March 2013, it has come back from parity in October last year.
Mr Harvey's comments follow the release of Rabobank's latest Rural Confidence Survey, which showed 37pc of the State's farmers expected economic conditions to improve in the next 12 months.
Rabobank State manager for Victoria Todd Charteris said near record farmgate prices made dairy farmers more positive than others.
"Dairy farmers are particularly buoyant at the moment with strong end-of-year forecasts for farmgate prices and plenty of upside potential," he said.
"The global outlook for dairy remains positive and, while there is an expectation that increased production later in the year in key exporting nations may lead to a modest easing in prices, prices are still expected to hold up well.
"Dairy farmers are generating healthy returns at current prices, despite their milk production being down on last year, and many have good fodder and water reserves at their disposal."
