Optimistic farmers set up for profitable year

Dairy farmers are setting themselves for another profitable year, according to Dairy Australia’s latest Situation and Outlook report.

While prices are expected to remain high in the short term, the report acknowledged increasing costs along the supply chain will increase risks.

The report has shown farmgate milk prices have increased significantly across the world’s major dairy export regions.

The report said even before the Russia-Ukraine conflict, global dairy commodity prices were “soaring” due to a global supply shortfall.

However, the report said the rising costs of inputs, lack of labour, unfavourable weather and variable feed quality and prices continue to limit the production response by producers.

Dairy Australia senior industry analyst Sofia Omstedt said although costs were going up across the board, the dairy industry remained profitable.

She said the rise in commodity prices had been driven in part by a shrinking global milk pool, with many key exporting dairy regions experiencing a drop in production.

Ms Omstedt said in Australia, the anticipated consumption rebound had lived up to expectations, with food service sector sales up by 24 per cent over the holiday period, and retail sales on par with pre-pandemic levels.

“The Australian dairy industry is not immune to broad inflationary pressures, with cost pressures and margin impacts expected to be felt across the entire supply chain.

“Despite this, however, supportive market fundamentals continue to provide cause for optimism, with growing demand and weaker supply underpinning elevated commodity values.

“With the national milk pool expected to shrink by between one per cent and three per cent this season, strong competition for milk is likely to continue well into next season,” Ms Omstedt says.

The report said combined with the current lack of supply, dairy commodity prices look fundamentally well-supported, though most Australian manufacturers are unlikely to immediately benefit, being already sold out of product this season.

“Decreasing milk production in Australia has limited export availability and resulted in further rationalisation, with Saputo Dairy Australia

announcing line closures at some of its manufacturing sites.

In January, milk flows slowed by 6.3 per cent, and year-to-date volumes are down by 2.6 per cent, according to the report.

Overall, a smaller national herd and subdued per-cow yields, due to weather challenges and poorer quality feed, are projected to result in a reduction in Australia’s national milk pool this season.