Dairy Australia: Outlook positive, but requires balancing

The Australian dairy industry outlook is positive, but the weather and high input costs could throw things out.

The outlook for Australian dairy this spring is positive.

This is despite Dairy Australia currently forecasting a flat milk pool for the 2022-23 season, with labour challenges, excessively wet conditions in some parts, high costs and farm exits acting against the incentives generated by high milk prices and growing farmer confidence.

The main message in Dairy Australia’s September Situation and Outlook report, released today (Wednesday), is milk production will likely remain stable this season.

Dairy Australia industry insight and analysis manager John Droppert said it has certainly been a profitable year for most dairy farmers, but alongside the higher farmgate milk prices was the “balancing act” of high feed and fertiliser prices.

Mr Droppert said a likely third consecutive La Nina weather event could make things difficult on-farm.

“Good rainfall can grow a lot of grass and reduce the need for high-cost feed inputs, but wet conditions or flooding, particularly for those in northern NSW and Queensland who have already been dealing with mud for months, it can be challenging,” he said.

And while there were challenges, Mr Droppert said the Australian domestic dairy market remained more stable than the international commodity scene and there were strong global market signals which were positive for Australia.

The report said large parts of the European Union remained in drought, with milk production tracking 0.5 per cent below last year.

The Australian dairy outlook is positive this spring. Picture: Zoe Phillips

“Milk prices in the EU are at record levels, but dry conditions through the northern hemisphere spring and summer have reduced pasture quality and availability,” the report said.

Conditions are also dry in the US, but milk production was expected to increase slightly by 0.2 per cent.

And in New Zealand the report said early signs of sluggish pasture growth, high fertiliser and supplementary feed prices combined with the threat of a tightening regulatory environment means the 2022-23 New Zealand season looks complicated. New Zealand’s Exchange is forecasting a 1.9 per cent reduction in overall milk intakes.

Mr Droppert said these factors were being combined with a “real emergence of policy pressure” on EU and New Zealand farmers.

“The European Commission expects that cow numbers across the bloc will continue to fall – not least due to the emergence of greenhouse gas emissions policies encouraging this in key milk producing member states, such as Ireland and the Netherlands.”

Mr Droppert said there was also pressure on New Zealand farmers and if the dairy herd needs to be cut.

“Neither jurisdiction seems settled on if they will cut their dairy herds, but they aren’t aiming for growth,” he said.

Meanwhile, the report said for milk processors, margins are looking ever tighter as dairy commodity prices continue to retreat.

The price of milk has gone up on the supermarket shelves.

And while the current prices are all but locked in until June 2023, and significant volumes of product are already sold or hedged, “the remaining exposure will be a source of concern”.

Mr Droppert said they were also keeping an eye on how consumers react to increasing prices for dairy.

“It has been a long time since dairy prices have increased (at the supermarket), but early signs since there has been a more normal return to foodservice, is that consumers aren’t buying less dairy, but they are buying more in bulk and trading to different brands,” he said.