Production growth on the cards

The 2020-21 season has been a welcome relief for many in the Australian dairy industry, with most regions experiencing stability and an opportunity to consolidate businesses in relatively good circumstances.

Favourable weather, lower input costs and widespread profitability have not only buoyed sentiment but enabled many farmers to financially recover — even in the absence of national milk production growth.

After the recent announcement of minimum prices, and subsequent whirlwind of revisions, the stage is set for another season with relatively strong farm gate milk prices.

Higher opening prices are not the only cause for optimism, with several factors converging to support continued farm profitability and a possible increase in Australia’s milk pool for the year ahead.

For the past year, Mother Nature has played her part in supporting operating conditions.

Despite drier weather in southern Australia through autumn, rain from earlier in the year has helped keep soil moisture and water storage levels elevated.

This has held temporary irrigation prices in northern Victoria and southern NSW below $100/Ml.

The weather also helped to bolster a close-to-record grain and fodder harvest, boosted pasture growth rates and suppressed demand for purchased feed.

Both hay and grain prices remain at a significant discount compared to last year and, given stock on hand, demand is likely to be muted for some time.

Some farmers have chosen to increase supplementary feeding rates in response to lower costs, and this practice has helped to boost per-cow yields.

As feed costs are expected to remain subdued, this is likely to support milk flows heading into the 2021-22 season.

While many factors seem to be coming together to support milk production growth in 2021-22, there are still some opposing forces at play.

Persistently high beef prices continue to hold back a national rebuild of the dairy herd, as some farmers de-stock to boost returns and repair balance sheets, and others see beef farming as a more attractive pursuit.

Cull cow prices in April were pegged 23 per cent above the five-year average, with demand from domestic and international markets remaining strong.

Early indicators are also suggesting the re-emergence of African swine fever in China.

If these are borne out, increased protein demand from China is likely to keep beef prices elevated.

Despite these price levels, more farmers have been working to expand their herds.

This has seen culling slow, with data indicating year-to-date culling rates are down 18 per cent.

As the increasing of stocking rates by some farmers work to offset continued culling by others, Dairy Australia expects the national dairy herd to stabilise in 2021-22.

Labour shortages continue to pose significant issues for the industry, as international borders are set to remain closed for the foreseeable future.

According to the National Dairy Farmer Survey, labour availability is seen as a challenge in the next six months for nearly half of farms with herds in excess of 500 cows.

These farms are also significantly more likely to be relying on workers on temporary visas, with 49 per cent currently using this type of worker.

As employment options remain limited, some affected businesses are expected to continue diversifying away from dairy for the time being, impeding production prospects in 2021-22.

While ongoing culling, labour challenges and farm exits still temper expectations, many of the precursors for profitable growth finally seem to be coming together.

Favourable weather, higher opening prices, low input costs, and increased feed and water availability have improved operating conditions.

As such, Dairy Australia’s initial forecast envisages a zero per cent to two per cent increase in production for the 2021-22 season, which implies a full year range of between 8.80 billion litres and 8.97 billion litres.

The potential for profitable growth of the national milk pool is a welcome sign, as this would allow Australia’s dairy industry a chance to capitalise on any improvement in returns offered internationally and maintain a balanced portfolio of markets.