Dairy steps towards recovery

11 Oct, 2017 10:37 AM
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Everything is looking a bit better than this time last year.

THE dairy industry has entered a phase of “recovery” for most of the southern milk-producing region but there are increasing seasonal and price challenges for northern and domestic-focused regions.

The latest Situation and Outlook report from Dairy Australia shows milk production has had moderate growth, with an increase in farmgate milk prices, reasonable weather and generally reduced input costs, all contributing to improved prospects.

“Everything is looking a bit better than this time last year,” DA senior analyst John Droppert said. “Milk prices are a bit better and there have been some good seasons in dairy-producing areas.”

Mr Droppert said the “perennial” issue of high energy and labour costs remained but hay and other feed costs had mostly been contained, helping with recovery.

Forecasts for the 2017-18 season showed national milk production was likely to increase between 2 per cent and 3pc to a total forecast of 9.2 billion litres.

This follows a nationwide drop for the 2016-17 season of 7pc – including a 15pc decline in SA, 11pc drop in Vic, and Tas and NSW down 7pc and 6pc, respectively.

Mr Droppert said he would usually expect recovery to take two years, so this was a step in the right direction.

Results from the Dairy Farm Monitor Project showed similar or improved earnings before interest and tax, compared to the previous 12 months, while 89pc of surveyed farmers were optimistic about the upcoming season.

He said most farmers would use this time to consolidate and pay off any recent debt, while working to rebuild herd size and farmer confidence.

Mr Droppert said this trend of slow recovery was international, with dairy production in New Zealand and the European Union also experiencing a slow rebuild, which has had a positive impact on global markets.

He said southern regions, such as Vic, Tas and the South East of SA had experienced a boost in circumstances, with most having good weather, while SA and south west Vic were also benefiting from new entrants in the processing sector.

For those in the domestic-focused regions, including NSW, Qld and WA, conditions are slightly less positive, with particularly dry conditions in northern NSW and Qld.

Mr Droppert said these regions were also experiencing the flow-on effects from the price adjustment in southern markets in the past two years.

“With the southern and northern prices, if the differential is too large, we see more milk moving up the coast,” he said.

“Prices move slowly because of different contract arrangements but as contracts come up for renewal, these prices get passed on.”

This comes as domestic milk sales have increased, with volume up 2.5pc in the past 12 months and 4.6pc in value.

“Liquid milk sales are lifting surprisingly quickly, in value as well as volume,” Mr Droppert said.

“Branded milk sales are tracking at a higher level than before the milk crisis, leading to more value in supply chain, which is good for farmers.”

He said the cheese market had some challenges, with people looking to buy cheaper cheese or in bulk, but butter sales were only just starting to decline following retail costs rising 30-40pc in the past few years, while wholesale commodity prices for butter were up about 60pc.

He said part of the rise in butter popularity was due to a global trend of chains moving away from margarine and plant-based spreads to put butter back on the menu.

He said research was driven by a shift in health food science advice advocating natural fats, as well as a desire for natural products.

Mr Droppert said it was difficult for production to keep up with demand as it also coincided with a shift to full-cream milk, with the decrease in skim milk and a stockpile of skim milk powder meaning there was less buttermilk available.

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