Australia’s milk production dropped by 8.5 per cent for the six months to December last year as the impact of cuts to farmgate milk prices hit.
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Speaking about Dairy Australia’s (DA) latest Situation and Outlook report, DA senior industry analyst John Droppert said it expected national milk production for the full 2016-2017 season would be down between six and eight per cent on the 9.5 billion litres produced in 2015-16.
DA said the lower total milk intake posed a challenge for many processors.
It said the challenge would not be distributed evenly among processors because of the success of some in growing their share of the milk pool and filling the volume gap through supplier recruitment.
Most processors had also experienced some form of post-farmgate setback in the past year, with the broader market downturn, and intricacies of the Chinese market the most cited factors, DA said.
Downstream players have also had their share of setbacks, with Bellamys, Viplus, Camperdown Dairy International and Camperdown Dairy Company among those cutting sales forecasts, encountering trade restrictions or abandoning ventures.
Despite this, the significant amount of new manufacturing capacity coming online over the next few months was likely to maintain competition for milk at the farm gate, DA said.
On the wider international market, Mr Droppert said the balance between supply and demand pressures was keeping dairy commodity prices stable in the short term, after a steady recovery during the second half of 2016.
He said “sentiment drove the recovery but the fundamentals have since caught up.”
Mr Droppert said the global milk supply picture remained cautiously positive for sellers, with only the United States currently showing growth among the major exporters.
New Zealand and the European Union warranted close watching, but at present milk flows in both regions were likely to remain constrained, he said.
The volume of dairy products Australia traded over the past 12 months to the end of October 2016 rose by just more than seven per cent, with a recovery in demand from Greater China accounting for around a third of that growth.
However the value of global dairy exports was down by 14 per cent, with falls across all major markets except Greater China, reflecting the lower global prices for key dairy commodities for much of the year.
Dairy sales in Australian supermarkets for all major categories except yoghurt outgrew the 1.4 per cent population increase.
