Dairy milk pool steadies as eyes watch for coronavirus impact

Dairy milk pool steadies as eyes watch for coronavirus impact

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DESPITE widespread bushfires affecting many key dairy regions across the summer, national milk production has steadied in recent months following timely rainfall, according to Dairy Australia's March Situation and Outlook.

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DESPITE widespread bushfires affecting many key dairy regions across the summer, national milk production has steadied in recent months following timely rainfall, according to Dairy Australia's March Situation and Outlook.

But industry insiders are concerned about what the Coronavirus pandemic could mean for supply and demand of dairy products in the coming months.

In the 2019-20 season, the national milk pool has moderated to a decline of just 3.7 per cent, year-to-date, while volumes in December and January exceeded expectations, with December experiencing the first year-on-year increase in milk production in 18 months.

January milk production was up 0.5pc on 2019, nationally.

Dairy Australia Industry Insights and Analysis manager John Droppert said many farmers have been able to capitalise on favourable weather conditions and continued high farmgate prices, with the bulk of the milk production recovery centred on Gippsland, Vic, and Tas.

"A recent recovery in national milk production, together with substantially more favourable weather conditions across many dairy regions have been positive developments at a time of strong local and global dairy market fundamentals," he said.

During the summer bushfires, as many as 128 dairy farms, including 12 in SA, were impacted, with even more affected by issues such as power cuts, but had little overall influence on milk production.

The loss of milking cows was limited and most affected dairy farms were able to resume milking quickly due to effective cooperation between authorities, milk processors and industry bodies.

While the bushfires also had an effect on the fodder markets in the immediate aftermath, improved seasonal conditions reduced the demand for buying in feed in many regions.

Domestically, the report shows liquid milk sales increased 1pc in volume for the quarter, but 6.9pc in value, while cheese was up 1.2pc in volume and 5.6pc in value.

Yoghurt sales increased 4.7pc by volume and 6.1pc in value.

RELATED READING:National milk pool begins recovery but uncertainty ahead

DA research suggests this growth is supported by consumer trust in the industry strengthening from 68pc to 70pc, and trust in dairy foods and products as healthy and wholesome growing from 81pc to 84pc in the past year.

DA continues to forecast a drop in national milk production of between 3pc and 5pc to 8.3 billion litres to 8.5bL for the full 2019-20 season.

The international milk pool is tracking along similar paths to Australia, with the United States recording a 1pc year-on-year rise, but cow numbers remain marginally lower. Europe has experienced a 0.4pc improvement in milk production, while New Zealand is tracking along the same levels as 2018-19, and down 0.5pc for the season.

In the past year, global dairy imports grew 4.1pc in volume and 8.5pc in value, with this predominantly heading to Greater China and South East Asia.

But the international market is also facing how to deal with the "dual challenges of the ongoing African Swine Fever outbreak and the still-escalating COVID-19 crisis", Mr Droppert says.

The report shows there are still no material impacts of the Coronavirus outbreak on supply and demand of dairy products, but shows most dairy commodities have trended lower in recent weeks.

Face-to-face trade and business development activities have been widely disrupted, as has shipping and distribution, while the effect on underlying demand is uncertain.

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The report said "short-term disruptions" were unlikely to have a significant flow-on effect but a "sustained change to underlying demand" could have a substantial influence.

In Rabobank' Dairy Quarterly report, the outbreak is affecting the 2020 outlook, as well as sentiment.

It says reduced Chinese imports, significant supply chain disruptions and rising dairy surpluses in export regions will drive downward pressure on global markets through much of this calendar year.

While Rabobank forecasts the buying patterns of Chinese customers to normalise by the second half of 2020 - evidence of improvement in some supply chains are already visible - but warns Chinese dairy import volume is expected to fall 19pc for the year.

This is based on a build up of milk powder stocks, an expansion of local milk production and anticipated lower dairy demand in retail and foodservice channels.

The report brings positive news that the forecast reduction in imports is not expected to be as severe as in 2014-15, which disrupted the global dairy markets significantly and resulted in a decline in liquid milk imports of more than 35pc in 12 months.

RELATED READING: Concerns mount over processor shutdowns

But the report warns international efforts to limit the spread of coronavirus, such as "social distancing" and isolation, may have a "greater-than-expected" impact on dairy demand and supply chains.

"Falling tourist numbers are already impacting foodservice sectors in several markets," it reads.

"South East Asia is a particularly vulnerable region."

Rabobank senior dairy analyst Michael Harvey said global dairy commodity prices have already been set, based on the present uncertainty.

"But a less-than-favourable expected finish to NZ's production season is providing some support to global prices," he said.

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