Australia's milk production has taken a hit, the latest figures from Dairy Australia reveal.
The milk production report reveals production was down 3.6 per cent in August compared with last year, while year-to-date production was down 3.4pc.
The decline was largest in the most drought-affected states, with Victoria down 5.3pc (4.5pc year to date), NSW down 5.1pc (5.1pc year to date) and Queensland down 4.7pc (5.6pc year to date).
But South Australia (up 10.6pc for August and 9.1pc year to date), Western Australia (up 4.1pc for August and 0.7pc year to date) and Tasmania (up 3.1pc for August and 2.5pc year to date) defied the trend.
In Victoria, big falls occurred in the western region (down 10.6pc for August and 7.8pc year to date) and northern region (down 2.9pc for August and 4.2pc year to date).
But the eastern region was relatively stable (down 0.4pc for August and steady year to date).
Industry analysts were expecting the drop.
Dairy Australia senior analyst John Droppert forecast a 5pc spike in the number of dairy cattle being culled this year as a consequence of prolonged drought, high water and feed prices, and low milk returns.
This is on top of the average 20pc turnover of dairy cattle culled annually.
Dairy Australia is set to revise its national milk production forecasts downwards by the end of the month.
On the back of forced destocking in all NSW dairy producing regions, as well as northern Victoria, Dairy Australia is set to revise its milk production forecast to better reflected the contraction in herd numbers and subsequent expected fall in milk production.
“The impact of the current rate of culling is likely to extend beyond this season,” Mr Droppert said.
“There will be a revision downwards."
Rabobank, in its Dairy Quarterly update, said a shortage of feed and fodder has gripped the dairy sector in Australia, preventing any chance of a sustained recovery in milk production in the 2018/19 season.
Australia milk production was expected to trail last season through quarter three 2018 by 3.5pc, finishing the season down around 2pc, at 9.1 billion litres, the report said.
The report said there had been no shift in farmgate milk prices for the southern export region.
Based on Rabobank’s forecast, commodity prices for the full 2018/19 season and a spot currency rate of $US0.73, the full-year average commodity farmgate milk is $A5.90 a kilogram milk solids.
The report said combined year-on-year milk supply growth across the ‘Big 7’ dairy exporters (the European Union, the United States, New Zealand, Australia, Brazil, Argentina, and Uruguay) slowed during the third quarter of 2018.
“Ultimately, however, milk supply will grow only modestly year-on-year during the coming 12 months, driven by tight margins on-farm and lingering effects of adverse weather,” Rabobank dairy analyst Emma Higgins said.
“Surplus dairy available for export will significantly tighten for an extended period, which will provide some upside to pricing across the dairy complex.”
With globally rising forage costs, farmgate milk prices would need to move higher to offset the cost impact and improve farmer margins in order to support milk production growth, Ms Higgins said.