Dairy industry now cautiously optimistic after tough season
DAIRY Australia’s latest Situation and Outlook report released today highlights how the difficult 2016–17 season experienced by many farmers in the southern export-focused states caused cash flow management challenges that impacted on farmer confidence and milk production.
However, despite some of these challenges remaining, the report indicates Australian dairy farmers can be cautiously optimistic about improvements for the season ahead.
Dairy Australia senior analyst John Droppert said the broader market provided some positivity, with costs for major inputs contained and most farmers’ current milk price forecasts improved on the 2016–17 levels.
Yet confidence about the future of the dairy industry among farmers measured by the National Dairy Farmer Survey in February and March dropped from 67% in 2016 to 53% in 2017.
The survey also revealed profitability is at a three year low – 45% of the farmers surveyed anticipated a profit in 2016–17.
Mr Droppert said national milk production for the 2016–17 season was also expected to be down about 7.5% on the previous financial year to about 8.95 billion litres.
The NDFS survey revealed a third of farmers expected to grow their herd size in the next year and close to two-thirds anticipated their production would increase in the next three years, which signalled a modest growth in volume to about 9 billion litres for the season ahead.
Input costs are a more immediate bright spot. Record international production and strong harvests in Australia have kept grain prices contained.
There has been little change to the hay market in the past few months, with subdued demand, ample supply and low prices.
Most irrigation systems are expected to receive a high seasonal determination in 2017–18 and temporary water prices ended the 2016–17 season well below the $100/ML mark.
Internationally, improved margins have halted the fall in milk production in most exporting regions and overall demand for exports continues to grow, with the volume of dairy products traded in the 12 months to February boosted by 3.8%.
A recovery in demand from Greater China accounts for about 30% of this, while South-East Asia has also experienced growth.
Tonnages exported to the Middle East and North Africa, as well as Japan, have eased slightly.
Mr Droppert said domestic demand across dairy products remained strong, with supermarket sales volumes growing strongly for most key dairy categories, albeit with continued pressure on value.
For example, cheese and yoghurt increased sale volumes but value growth lagged as discounting pressure mounts and consumers seek out ‘value’ offerings.