Diversification has increased over time as a means of spreading risk and diversifying farm income throughout periods of market volatility.
The competition of other agricultural commodities and income streams — such as sheep, beef and live export trade — has become attractive to many dairy farmers.
Live dairy cattle exports have grown to become a significant revenue stream, not only on-farm, but also for the dairy industry more generally.
As such, over the past decade, the live export market has provided a robust market/opportunity for business diversification for many dairy farmers.
Over the past five seasons, live exports of Australian dairy cattle grew 136 per cent. The sharp increase seen over this period was also somewhat accelerated by the announcement of New Zealand’s live exports being phased out in 2021, resulting in key importers such as China and Japan seeking to establish alternative supply.
The major markets for Australian live dairy cattle exports are China and Japan.
The share of dairy cattle going to China has increased significantly over time, growing from around 68 per cent in 2012-13 to 91 per cent in 2022-23. The total number of cows being exported to China also increased 69 per cent over the same period.
In today’s market, however, exports to China have significantly decreased over the past 12 months — the number of live heifers sent to China from July to September declined 75 per cent compared to the same period in 2022.
Australian dairy cattle have played an important role in the build-up of China’s national dairy herd over the past decade.
However, this dynamic has shifted due to significant challenges developing post-pandemic, including a large surplus of milk, stockpiled product, and a slow economic recovery.
This has resulted in increased rates of culling and some smaller farms exiting the industry, therefore suppressing demand for Australian dairy cattle, at least while herd reduction is a priority.
Farm business diversification has also been encouraged by high beef prices in recent seasons. Over this time, many farmers opted to rear beef cattle and milk less cows, or in some cases, convert their businesses entirely to beef.
This began to change over the course of the past 12 months, however, as beef prices began to fall.
Driving this fall since last season is the continual post-drought rebuild of the national beef herd, alongside a reduced processing capacity within the sector.
In November 2023, the Eastern young cattle indicator (EYCI) was 456¢/kg carcase weight (cwt), a 56 per cent decline from 1041¢/kg cwt in October 2022.
Cull cow values have fallen in response, down 44 per cent on a year-to-date basis, resulting in a 24 per cent drop in the number of head passing through the saleyards.
Increased diversification within dairying businesses has resulted to a contraction in the portion of income from milk production.
Ultimately for farmers, this has cultivated a level of flexibility in adapting to changes in market conditions, but national milk production has suffered as a result.
Lower live heifer export, cull cow and beef cattle values, are likely to limit such pressures on Australia’s milk flows, especially while high farm gate milk prices support dairy profitability.
Isabel Dando is a Dairy Australia industry analyst.