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Dairy industry prepares for challenges ahead

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The December 2023 Situation and Outlook Report from Dairy Australia forecasts milk production to remain steady over the 2023/24 season despite the anticipated impacts of the El Niño weather event.

Record profits were recorded in some regions last season and high farmgate milk prices this season bode well for farmers.

“However, there are some challenges such as high production costs, Australia’s competitiveness of dairy products and economic constraints on consumers,” warned Dairy Australia’s industry analyst, Eliza Redfern.

“The good news for Australian dairy is that the impacts of El Niño, which was officially declared by the Bureau of Meteorology in September and is expected to bring hotter and drier conditions, may not be as severe on milk production at the national level as past events.

“Weather conditions are significantly different to this time last year and it shows through the moderate production growth recorded in every month of this season.”

Australian dairy farmers in several regions made record profits during the 2022/23 season, strengthening progress towards Dairy Australia’s target of at least half of farming businesses achieving $1.50/kg MS EBIT (earnings before interest and tax) over a five-year average.

The latest Dairy Farm Monitor Project results indicate that last season’s significant weather challenges contributed to a substantial rise in total farm costs. Supplementary feed was brought in at high rates to combat weather damage and many farmers reported increased labour costs [sic] but also retain them.

“The Australian dairy industry enjoyed record profitability last season and is still benefiting from high farmgate milk prices this season, as well as strong retail revenues,” Ms Redfern added.

“High production costs, Australia’s price competitiveness of dairy products and economic constraints on consumers are emerging risks.”

The cost of producing milk remains high this season. Feed prices remain under pressure due to average yields this harvest and strong demand for supplementary feed, while temporary water prices have risen.

Recent developments relating to the Murray Darling Basin Plan have also raised the prospect of reduced water availability in the longer term.

Geopolitical tensions also continue to weigh on farm input markets, with both grain and fertiliser markets still influenced by the Ukrainian conflict, despite the increased fertiliser supply which has seen global indicative prices drop between 20 and 40 per cent below October 2022.

Dairy export commodity prices have seen some recovery in recent months, led by a contraction in exportable product globally. Global demand remains quiet however and will likely limit further price increases. Local demand across both Europe and the US has increased in the lead up to the end of year holidays, diverting tighter milk supplies to respective domestic markets.

Additionally, lower farmgate milk prices in all key exporting regions (apart from Australia) have weighed on milk flows. Global demand, however, remains quiet and will likely limit significant export price recovery.

The Situation and Outlook report also confirms that Australia is becoming a much more prominent dairy importer, shipping in the largest volume of overseas dairy in a single season during 2022/23. In 1999/2000, imported products accounted for 11 per cent of Australia’s dairy consumption, whereas last season, 27 per cent of dairy consumed was from overseas.

With Australian farmgate prices keeping prices of the local product high, imported dairy has proven increasingly attractive to businesses and consumers looking to limit cost pressure. This growing pressure from overseas dairy products is a sign that deviation from global markets is a temporary phenomenon and will likely have implications for next season’s farmgate milk prices.

Dairy in a retail setting continues to see significant total value growth, ranging between 9 to 14 per cent depending on the category.

Corryong Courier 7 December 2023

This article appeared in the Corryong Courier, 7 December 2023.

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