Australian dairy prices are stabilising but remain significantly higher than year ago comparatives according to UBS’s latest update to its Evidence Lab proprietary Food and Beverage weekly price tracking. Dairy prices tracked 17% ahead of prior year in January, with white milk prices up 25% YOY, followed by block cheese (+23% YOY) and butter (+19%). Flavoured milk prices were 15% higher in January compared to a year ago, while yoghurt prices lifted 1% YOY in January. UBS expressed concern about the fall in Australian milk production, with seasonal output down 7% on the prior year. Declining milk production is expected to intensify competition in an already highly competitive farmgate milk market.

Meanwhile, Rabobank are warning Australian consumers dairy prices could soon lift further because of falling milk domestic milk supply. Senior analyst Michael Harvey said the price hikes would come as consumers are already feeling the squeeze from the highest food inflation in two decades. He said a lot of processors paying record high prices at the farmgate are passing price hike through to consumers to restore margins in the supply chain. While Harvey said a market correction will arrive, he warned retail prices would be the last thing to ease.