Dairy recovery under threat from supply increase

Recovering: Dairy Australia says the Australian dairy industry is recovering from the past two tough seasons but the upturn is shaky.
Recovering: Dairy Australia says the Australian dairy industry is recovering from the past two tough seasons but the upturn is shaky.

The Australian dairy industry might be entering a recovery phase but there was no indication yet of an ongoing rise in farmgate milk prices, Dairy Australia (DA) says.

DA senior analyst John Droppert said while last week’s farmgate milk price increase by Warrnambool Cheese and Butter showed there were some upside in the current market, there were no signs that international prices for dairy commodities were increasing.

Signs that international milk production was increasing indicated there were “more downside risks than upside” to the market, he said.

While the future was uncertain, Mr Droppert said a modest growth in Australian milk production, generally favourable seasonal conditions and contained input costs all pointed to the Australian dairy industry being in a recovery phase.

In DA’s latest Situation and Outlook report, Mr Droppert said the results of the latest Dairy Farm Monitor Project (DFMP) even indicated dairy farmers in the southern export-focused states of Victoria, Tasmania and South Australia, that had relatively favourable weather conditions, had been able to cut costs through the economically difficult 2016/17 season. 

“2016/17 was undoubtedly a tough season for cash flow but the ability of farmers to adapt, together with generally lower hay and grain costs and better weather conditions, has helped many to generate a more positive financial result than they may have anticipated,” he said. 

Despite the lowest milk price received in the history of the DFMP, 89 per cent of farmers recorded a positive return on assets as favourable seasonal conditions and pasture growth reduced feed costs, helping to offset the low milk price.

The report also found 89 per cent of surveyed farmers were optimistic for the 2017-2018 season with the majority of farmers surveyed predicting an improvement in farm business returns.

In the broader context, the international dairy market had been supportive of a gradual recovery with demand for dairy commodities in even balance with supply. 

Butter prices were at are near record levels but skim milk powder prices were down because of large volumes in Europe. 

Australia’s milk production was expected to have a modest increase, boosted by growth in volumes from the nation’s southern regions.

“Dairy Australia’s forecast for 2017/2018 milk production remains a growth range of between two and three per cent on the 2016/2017 total of 9.02 billion litres.

“This implies a forecast total of around 9.2 billion litres for 2017/18,” Mr Droppert said.