Pro­duc­tion falls most se­vere in north­ern Vic­to­ria and SA

Dairy News Australia - - MARKETS - LAU­RIE WALKER

AUS­TRALIAN MILK pro­duc­tion for the 2016– 17 sea­son to­talled a lit­tle over 9000 mil­lion litres com­pared to the 9680 mil­lion litres pro­duced dur­ing the 2015–16 sea­son, a fall of 6.9 per cent. Broadly, the sea­son has been one grad­ual and un­steady re­cov­ery, with monthly milk vol­umes down more than 10 per cent at the be­gin­ning of the sea­son. Over the course of the sea­son, these milk vol­umes have been slowly and un­evenly clos­ing the gap, as can be seen in the chart be­low (Fig­ure 1). Vol­umes for the fi­nal month of the 2016–17 sea­son were up 2.2 per cent on last year. The changes in milk vol­umes have been un­even, with the pre­dom­i­nantly drink­ing milk states of Queens­land and Western Aus­tralia fin­ish­ing the sea­son up 1 per cent and down 1.9 per cent re­spec­tively. Whilst these states face their own unique chal­lenges, they are some­what sep­a­rated from the more pro­cess­ing and ex­port-ori­ented south­ern milk pool, and con­se­quently were not di­rectly af­fected by the late sea­son price-step downs. The most se­verely af­fected states have been Vic­to­ria and South Aus­tralia, down 8.0 per cent and 8.2 per cent re­spec­tively. Fur­ther­more, within these states per­for­mance this sea­son be­tween re­gions has been fairly di­ver­gent. In South Aus­tralia, most of this de­cline was due to lower vol­umes in the south­east around Mt Gam­bier, which ac­counts for over half of the state’s pro­duc­tion. Vol­umes out of Mt Gam­bier were down over 11 per cent to around 270 mil­lion litres, while the rest of South Aus­tralia’s milk pro­duc­tion was by sig­nif­i­cantly less, around 4 per cent. Given the smaller milk pool avail­able in south­east South Aus­tralia, the re­cent in­creases in pro­cess­ing ca­pac­ity by War­rnam­bool Cheese and But­ter and the new Union Dairy Com­pany fa­cil­ity in Penola it seems that be­yond re­cent head­lines, there will be an on­go­ing strug­gle to se­cure sup­ply and main­tain a pres­ence in the re­gion. Within Vic­to­ria a sim­i­lar di­ver­gence can be seen in the dif­fer­ence in per­for­mance be­tween north­ern Vic­to­ria, and the west coast and Gipp­s­land re­gions (Fig­ure 2). North­ern Vic­to­ria fin­ished the year at around 1,750 mil­lion litres com­pared to 2,090 mil­lion litres the year be­fore, a fall of 16.5 per cent. Western Vic­to­ria and Gipp­s­land fin­ished the sea­son down 4.2 per cent and 4.0 per cent re­spec­tively. With the sig­nif­i­cant fall in vol­umes out of north­ern Vic­to­ria, the re­gion’s share of Vic­to­rian milk pro­duc­tion has fallen to around 30 per cent, which con­trasts with a high­point of 41 per cent in 2001–2002, while Gipp­s­land and western Vic­to­ria have both in­creased their share of milk pro­duc­tion. Part of this may be ex­plained by relative costs of pro­duc­tion be­tween the re­gions. Lower in­put costs in the form of cheaper hay and feed grain, fer­tiliser and tem­po­rary water prices through­out 2016–17 pro­vided some re­lief to farm­ers. Many pro­duc­ers were in­tent on re­pair­ing their bal­ance sheets, and so de­ferred as much on farm ex­pen­di­ture as they could. Pre­lim­i­nary data from the Dairy Farm Mon­i­tor­ing Project sug­gests that the cu­mu­la­tive ef­fect of this has been to lower costs of pro­duc­tion in some cases by as much as $1 kg/MS across Vic­to­ria. Af­ter these sig­nif­i­cant im­prove­ments, costs of pro­duc­tion for western Vic­to­ria and Gipp­s­land were broadly sim­i­lar, how­ever, even af­ter sig­nif­i­cant falls, those same costs of pro­duc­tion in north­ern Vic­to­ria were still con­sid­er­ably higher. The grad­ual drift towards higher cost pro­duc­tion sys­tems in north­ern Vic­to­ria, with ex­tra risks as­so­ci­ated with ir­ri­ga­tion and feed prices pose an on­go­ing challenge to sta­bil­i­sa­tion and prof­itable growth of the in­dus­try in the re­gion. Com­ing off an ex­tremely dry June, and with fore­casts sug­gest­ing a dry spring is likely tem­po­rary water prices, as well as prices for hay and feed grain have all started to move up­wards. Whilst the global mar­ket looks more bal­anced than any time in the last two years, these loom­ing sea­sonal con­di­tions may yet cur­tail the 2 per cent – 3 per cent re­cov­ery in milk vol­umes DA has pro­jected.

North­ern Vic­to­ria fin­ished the year at around 1,750 mil­lion litres com­pared to 2,090 mil­lion litres the year be­fore, a fall of 16.5%. Western Vic­to­ria and Gipp­s­land fin­ished the sea­son down 4.2% and 4.0% re­spec­tively.

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