Good conditions boost farm profitability

Favourable conditions across most dairy farming regions are continuing to support one of the best seasons of recent years, although a smaller national dairy herd, a drop in farm numbers and labour challenges related to COVID-19 are constraining milk production growth.

National milk production is set to increase for the first time in three years, with Dairy Australia’s Situation and Outlook for December reporting it is tracking towards the lower end of a forecast range of 1-3% growth (8.87 to 9.04 billion litres) due to a weaker than expected spring peak.

January to September there were consecutive monthly increases in milk production, while October saw a decline of 0.3% year on year. Production continues to increase in Tasmania and has picked up momentum in South Australia and western Victoria, as growth has slowed in other regions.

Consumer demand for dairy products remains buoyant. The easing of COVID-19 restrictions has unleashed pent-up consumer demand and seen foodservice sales rebound. Retail stores continue to report elevated sales, with sales of butter and milk increasing 8.7% and 4.6% respectively.

“This is set to be one of the best seasons of recent times. Good rainfall in most regions has enabled feed to be grown on farms and softened prices for feed and water, helping many farms to make good profits,” said Dairy Australia Senior Industry Analyst Sofia Omstedt.

“After strong monthly milk production increases earlier this year, we’ve experienced a weaker than expected spring peak - reflecting a smaller national herd, fewer farm businesses and labour availability challenges from closed state borders and international workers unable to travel.

“Whilst there are risks to the global dairy market balance, an abundance of high-quality grain and hay at attractive prices, plus a continuation of good pasture growth remain the most likely drivers of a lift in milk production this season,” Ms. Omstedt said.

Dairy Australia’s Dairy Farm Monitor Project shows stronger farmgate milk pricing and lower input costs have supported increased farm profitability in all regions in the past 12 months, after the challenges of recent years. This is yet to be translated into increased production.

“Investments on farm usually suffer during a drought or period of a low farmgate milk price. As a result, milk production growth often takes a back seat until debt reduction and reinvestment requirements have been met,” Ms. Omstedt added.

Global dairy commodity prices have remained stable despite the volatility brought on by COVID-19. The outlook for pricing is uncertain, with milk production in the world’s four largest dairy exporting regions increasing for more than four months in a row for the first time since 2014.

Strong Chinese demand for dairy has continued to keep the market relatively well balanced and been the main driver of a 3.8% increase in global dairy trade in the 12 months to August. Milk powder demand has been particularly strong, exports growing 6.5%. A stronger yuan is making dairy imports comparatively cheaper in China.