Australian Dairy Outlook

Published 18 July 19

The Australian dairy industry is expected to face further declines in milk production, according to Dairy Australia’s latest Situation and Outlook report. Milk production for the season so far (July-May) is down 7.7% compared to the previous year, equivalent to a year on year reduction of 670m litres. Overall, the 2018/19 season is expected to finish 7 - 9% down on the previous season.

While there are some positive developments on the horizon, supporting some recovery in production levels, a further drop is expected for the 2019/20 season. That would bring annual production down to 8.1 - 8.3bn litres – the lowest level in over 20 years.

The extreme dry conditions which have affected most regions this season have pushed up input costs, eroded margins and dented farmer confidence. However, from April, most dairy-producing regions have had at least one substantial rainfall event, which will have benefited pastures and winter grain crops.

With the decline in feed availability, many farms reportedly reduced herd numbers in an attempt to soften margin losses. Culling figures were up 11% to 76,300 head in the twelve months to March.

A positive move for markets was the increases in retail prices of liquid milk earlier this year. The average retail liquid milk price is up 1.5% to $1.42/L (£0.80/l), helped by major supermarket retailers lifting their minimum price point up from $1/L. Much of this difference is paid directly to producers, which, along with increasing global pricing and a weaker Australian dollar, has helped to push farmgate prices up. However, high input costs continue to outweigh any farmgate price increases.

Following the tough season, domestic milk supplies are anticipated to remain tight going into the new season.  With dairy consumption figures rising however, competition among processors for the limited milk supplies will intensify, adding upward pressure to prices. The higher farmgate prices will, over time, help milk production to recover.  However, it may also limit short-term export potential, particularly if processors competing for dwindling supplies drive prices above global levels.

 

Alex Cook