Challenging times ahead

By Dairy News

Dairy Australia’s February Situation and Outlook report points to farmers finishing this season in better shape than last year, but warns increased Northern Hemisphere milk production could mean challenging times ahead.

Dairy Australia senior industry analyst John Droppert said European year-on-year production growth had hit six per cent, prompting a deterioration in market sentiment. Production in the United States was up 1.4 per cent in the year to December.

“Prices are steady-to-higher but the reality of Northern Hemisphere expansion cannot be ignored and the fundamentals point to downward pressure on milk prices in southern regions in the coming months,” Mr Droppert said.

“The size of Europe’s dairy herd has begun to fall so that is a good sign that the growth spurt we’re seeing should soon moderate.”

Mr Droppert said a decline in New Zealand milk production had limited the impact of increased supply on commodity prices, as had double digit growth in Chinese and Japanese imports.

New Zealand farmers were hit by an extremely dry summer and the impact of some welcome January rain was likely to be offset by lower feed surpluses.

As predicted in the October Situation and Outlook report, Australian milk production growth was driven largely by the southern export-focused dairy regions of Victoria, Tasmania, South Australia and southern NSW.

Domestic-focused regions saw milk production fall over the same period, particularly northern NSW (three per cent down) and Queensland (five per cent down). Dry conditions in those regions added to the challenge of flat or lower domestic milk prices. Milder weather in Western Australia saw production remain stable.

The Australian domestic market remained stable, with volume growth continuing in most major dairy categories. Sales value growth remained strong, with the exception of cheese, where retail prices remained under pressure.

Mr Droppert said a number of processors had demonstrated confidence in the industry’s long-term prospects, recently announcing plans to significantly boost processing capacity.

“The challenge for those processors will be in how they support and grow a profitable milk supply base to realise the potential of their manufacturing footprints while their competitors battle to retain their existing supply base,” he said.

“Amidst the contrasting short and medium-term market signals, any inducement to produce more milk or retain existing suppliers will need to account for risks that remain in the global market.”