Dairy outlook predicts drop in production

In Dairy Australia’s latest Situation and Outlook report, predictions showed Australia’s milk production for 2018-19 – instead of the expected recovery and growth period – would fall 5 per cent to 7pc on 2017-18.

DA senior analyst John Droppert said forecasts for the 2018-19 year showed milk production would fall below 9 billion litres to 8.6-8.8bL – the lowest since the 1995-96 season.

Mr Droppert said SA was somewhat bucking the trend and was expected to stabilise production.

“For September milk production, SA is up 7pc, compared to the national figure, which is down 3pc,” he said.

Mr Droppert said much of the drop in production was impacted by feed shortages and costs, with hay, in particular, at record high prices and grain “certainly up there”.

He said feed was the biggest challenge for dairyfarmers at the moment.

“It’s as challenging as it’s ever been,” he said. “There is competition from other higher intensity industries.”

Mr Droppert said SA was at a “small advantage” when it came to sourcing feed, with the state largely able to be “self-sufficient”.

“But the fact that they can send feed across the border will mean the price pressures are there,” he said.

Mr Droppert said the concerns about feed were not just the price but the speed it increased.

“In 2018 the industry had two years’ of fodder – after a good season in 2016 – and it just evaporated and that threw a lot of people,” he said.

“In our farmer survey in February, feed was nowhere near top of the list of challenges. At this time the number one, two and three challenge for farmers is securing feed ready for next season at a price they can live with.”

Mr Droppert estimated feed prices were adding an extra $1 a kilogram milk solids to the cost of production.

“There is not a $1/kgMS margin there to give away,” he said. “That is probably the main driver of the decision to cull cows.”

Mr Droppert said culling of cows was tracking about 15pc above the previous year, and forecast to reach about 25pc up on 2017-18. He said this would likely result in 5pc fewer cows nationally, and potentially 5pc less milk.

Mr Droppert said there were plenty of positives in the milk industry with a “reasonably high milk price in historical terms”.

The report showed the Australian farmgate price had lifted 3pc since June and 9pc since October 2017.

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He said there was also robust domestic growth with liquid milk, cheese and yoghurt sales lifting in volume and value.

Year-on-year, liquid milk experienced a 0.9pc growth in volume to 1.4bL and 1.5pc lift in value. Despite a 2015 swing to branded products, supermarket label milk sales are up 5.9pc.

Cheese sales lifted 1.9pc in volume and 3.9pc in value, driven by a surge in popularity of deli-style cheeses. Yoghurts and dairy snacks have grown to be worth $1.5b, with a big increase in the sales of unsweetened, traditional style products. 

​Mr Droppert said there was good global demand – exports were up 5pc year-on-year – and Australia could command a premium in some markets, but there was some concern with New Zealand lifting its production on the back of a good season. He said NZ was expected to increase its September figures by 6pc.

But he said the global market was steady, and the exchange rate was working to Australia’s advantage.

SA Dairyfarmers’ Association president John Hunt said the situation was tough for those in the industry.

“People are really doing the numbers for the year and working out if feeding is worth it,” he said. “They might have to look at culling cows early, destocking or using grass when they can. Everyone is getting rid of the bottoms (of the herd) a lot earlier than they normally would.”

Mr Hunt said it was frustrating to have few signals coming from processors to indicate how much producers should be investing in their herds.

“(We need) a view on the horizon that we could get a step up or a realisation that costs of production are getting too high for what they’re getting,” he said.