Dairy is the ‘commodity in focus’ for the December edition of the NAB Agribusiness Commodities Wrap, and NAB agribusiness general manager, Khan Horne, said the strong dollar had limited dairy price increases compared with international markets, but also lowered costs.

“Over the past six months, international dairy prices increased 70 per cent in US dollar terms. Unfortunately the rising value of our dollar has resulted in only a 20 per cent increase in Australian dollar terms,” Mr Horne said.

“However, fertiliser prices are down significantly since the highs of last winter and petrol prices are lower than they have been for some time. Feed costs have come back thanks to weak global grain prices and increased domestic supplies of feed quality grain,” he said.

There have also been recent increases in seasonal water allocations for northern Victoria, with the Murray Valley at 57 per cent and Goulburn Valley at 46 per cent, compared with 24 per cent and 21 per cent respectively at the same time last year.

Mr Horne said looking beyond 2009-10, he expected a steady improvement in farm-gate prices and lower production costs to lead to improved profitability in the dairy industry.

“With the strength of the Australian dollar expected to continue, this is likely to see input prices remain at more affordable levels and help to offset the decreased value of farm production,” he said.