ABARES is forecasting the Australian farmgate milk price to fall 6 per cent in 2024-25.
It is also forecasting a 1pc fall in milk production.
The decline would continue into the medium term with production and prices predicted to be lower out to 2028-29, as the impact of lower dairy farm numbers is felt.
The predictions were contained in the ABARES March 2023 Agricultural Commodities Report, released to coincide with the Outlook conference in Canberra.
The report says the 2023-24 price is forecast to fall by 4pc to 72 cents a litre ($9.49 per kilogram of milk solids).
This is significantly higher than ABARES forecast in March 2023, when it said the 2023-24 prices would fall 14pc to be 62.5c/L ($8.22/kg MS) in 2023-24.
This year's report says the 2024-25 farmgate milk price is forecast to fall 6pc to 67.6 cents a litre ($8.91/kg MS).
It says lower export prices are expected to reduce the price processors can offer producers.
But it also says processor margins - although remaining tight - will improve next season.
"This should result in Australian farmgate milk prices being more aligned with world dairy prices than in 2023-24," the report said.
Although prices would be down, they would still be about 30pc higher than the five-year average to 2021-22.
ABARES said in the medium term prices would fall, reflecting lower export prices.
Alternative scenario paints a better picture
ABARES offered an alternative scenario for all its forecasts, based on lower world economic growth.
This would be positive for the dairy industry, as a lower Australian dollar would drive up Australian export prices, supporting a higher farmgate milk price.
It also assumes two consecutive La Nina event in 2025-26 and 2026-27, which would drive a reduction in world milk supply, primarily in the European union and United States.
This would lead to higher global dairy prices and would put upward pressure on Australian farmgate milk prices.
Milk production to fall over the medium term
The report says milk production will grow 1.8pc this season to 8.3 billion litres.
This would be due to higher milk yields and improved pasture quality and fodder harvest on the back of better seasonal conditions.
But dairy cow numbers are forecast to fall.
This would be due to the decline in the number of dairy farms and despite the reduction in live dairy breeder exports to China.
In 2024-25, milk production is expected to fall by 1pc to 8.2 billion litres, driven by declining herd and dairy farm numbers.
Dairy farmers would be encouraged to exit by higher land values and increase cattle prices.
Milk production is projected to continue to fall to 2028-29, but at a slower rate than over the five years to 2022-23.
In the alternative scenario, milk production is forecast to be relatively stable with a smaller reduction in cow numbers.
Good seasonal conditions under this scenario would also stem farmer exits.
Value of milk production to fall
The report says the value of milk production will fall 2pc this season to $6 billion - reflecting the fall in farmgate milk prices.
The value is forecast to fall a further 7pc in 2024-25 to $5.5 billion, as both prices and production fall.
By 2028-29, ABARES forecasts the real value of milk production to fall to $4.7 billion.
In the alternative scenario, the value of milk production is forecast to be higher, ranging between $5.1 billion and $5.9 billion.
World supply to rise with strong US production
World supply of dairy products is expected to rise slightly in 2024-25, ABARES says.
Despite this, world dairy prices are expected to rise as world demand is expected to grow.
Higher production in the United States is expected to drive higher world supply.
World dairy product supply is also expected to rise over the medium term, as higher US and New Zealand milk production outweighs slightly lower EU production.
World demand for dairy products is also expected to rise over the medium term, but at a slower rate than world supply.
Opportunities and challenges
ABARES said biosecurity remained a key risk for the livestock industry - with ongoing threats of foot-and-mouth disease and lumpy skin disease.
If introduced to Australia, these diseases would reduce market access for Australia's exports and be extremely disruptive to Australia's livestock industry.
Changes in supermarket regulation could also have an impact on the dairy industry.
If an Australia-EU Free Trade Agreement was reached, it could improve market access for dairy exports, ABARES said.
Carlene Dowie
Carlene Dowie is the editor of the Australian Dairyfarmer magazine and has more than 30 years' experience as a rural journalist.
Carlene Dowie is the editor of the Australian Dairyfarmer magazine and has more than 30 years' experience as a rural journalist.
