Low global dairy prices, dry conditions and high input costs are tightening margins for Australia's dairy farmers, and reducing national milk production
Dairy Australia is expecting an overall drop in milk production for 2015/16 after a slow spring and summer. The national volume was down 0.2% for the season at the end of December.
Elevated prices for grain and hay, combined with lower milk prices, have reduced the incentive for farmers to draw on alternative feed sources to maintain or grow production.
Australia's stable domestic market and a more favourable exchange rate are helping to buffer the impact of declining world prices, high input costs and the dry season.
Lower milk flows have given Australian processors room to move in adjusting their product mix to optimise returns and also help mitigate lower commodity prices.
Supply and demand on the international front remains out of balance. Production in the northern hemisphere has increased, while global demand has been on a slowing trend - forcing international commodity prices lower. Exports to the Middle East and China have eased.