Dairy Australia predicts challenging times

By Jim Cornall

- Last updated on GMT

A stable domestic market is helping buffer declining world prices, says Dairy Australia analyst John Droppert. Photo: iStock - shaoleung
A stable domestic market is helping buffer declining world prices, says Dairy Australia analyst John Droppert. Photo: iStock - shaoleung

Related tags Milk Supply and demand

Decreasing global dairy prices, dry conditions and high input costs are tightening margins for Australia’s dairy farmers, and reducing national milk production, according to the latest Situation and Outlook report from Dairy Australia.

The report says that supply and demand on the international front remains out of balance. It notes that increased northern hemisphere production is outweighing any recovery in global demand, forcing international commodity prices lower.

Dairy Australia industry analyst John Droppert said the stable domestic market and a more favorable exchange rate were helping buffer the impact of declining world prices, high input costs and the dry season.

“The Australian market has remained a steady outlet for well over half of the industry’s milk,”​ Droppert said.

“Supermarket sales for dairy spreads continue to grow strongly, while milk, cheese and yogurt sales are steadier.”

Drop in production anticipated

However, 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,”​ Droppert said.

“An ‘average’ autumn could see volumes prove more resilient later in the season, but even a recovery through this period would be too late to offset low production volumes in spring and summer.

“However, lower milk flows have given Australian processors room to move in adjusting their product mix to optimise returns in response to lower commodity prices.”

Imminent recovery unlikely

Droppert said recovery on the global front was unlikely in the near future with the upcoming spring production in the northern hemisphere and ongoing sluggish demand from key markets.

“Continuing supply growth is the key factor keeping the market depressed, but prices are ultimately a function of the supply/demand balance, and dairy demand hasn’t kept pace,”​ he added.

“In recent months, growth in global demand has been relatively small and on a slowing trend as inventories have built up. Exports to the Middle East and China have eased. However, many Southeast Asian countries continue to stock up on relatively affordable products and global exports to Japan have demonstrated their strongest growth in years.”

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