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Cautious optimism as markets show some improvement

Tuesday 06 June 2017 | From Dairy Australia

Dairy Australia’s latest Situation and Outlook report released today highlights how the difficult 2016/17 season experienced by many farmers in the southern export focused states caused cashflow management challenges that impacted on farmer confidence and milk production.

However, despite a number of these challenges remaining, Australian dairy farmers can be cautiously optimistic about improvements for the season ahead.

Dairy Australia Senior Analyst John Droppert said the broader market provides some positivity with costs for major inputs contained and most farmers’ current milk price forecasts improved on 2016/17 levels.

Yet confidence about the future of the dairy industry among farmers measured by the National Dairy Farmer Survey (NDFS) and conducted in February and March has dropped from 67% in 2016 to 53% in 2017.

The survey also revealed profitability is at a three year low - 45% of farmers surveyed anticipated a profit in 2016/17. Mr Droppert said national milk production for the 2016/17 season is also expected to be down about 7.5% on the previous financial year to about 8.95 billion litres. 

The NDFS survey revealed a third of farmers expected to grow their herd size in the next 12 months and close to two thirds anticipated their production to increase in the next three years which signals a modest growth in milk volume to around nine billion litres for the season ahead.

Input costs are a more immediate bright spot. Record international production, and strong harvests in Australia have kept grain prices contained. There has been little change to the hay market in the last few months with subdued demand, ample supply and low prices. Most irrigation systems are expected to receive a high seasonal determination in 2017/18, and temporary water prices ended the 2016/17 season well below the $100/ML mark. 

Internationally, improved margins have halted the fall in milk production in most exporting regions and overall demand for exports continues to grow with the volume of dairy products traded over the twelve months to February boosted by 3.8%. 

A recovery in demand from Greater China accounts for around 30% of this, while south east Asia has also seen growth. Tonnages exported to the Middle East and North Africa, as well as Japan have eased slightly. 

Mr Droppert said domestic demand across dairy products remains strong with supermarket sales volumes continuing to grow strongly for most key dairy categories albeit with continued pressure on value. For example, cheese and yoghurt have seen increased sale volumes, but value growth has lagged as discounting pressure mounts and consumers seek out ‘value’ offerings.

“The end of a difficult 2016/17 season, and the potential for better operating conditions in 2017/18 offers hope that the rebuilding of confidence and relationships along the dairy supply chain will accompany better profitability,” Mr Droppert said.

“There is widespread appetite to apply the lessons of recent challenges and take the industry forward. Consumer support at home, and a balanced market internationally, provide a promising backdrop to getting this done.”

Media enquiries:

Chris McNamara — Communications Advisor, Dairy Australia
03 9694 3802 / 0417 540 059 / cmcnamara@dairyaustralia.com.au


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