May 17, 2012

Australia's milk production rises as prices dip

Australian milk industry's profitability continues to test the faith of dairy farmers as the country's milk production is the highest it has been for a decade.

Nationally, milk production is expected to increase from 9.1 billion litres in 2010-11, to 9.5 billion litres in 2011-12, Dairy Australia said in its 2012 Situation and Outlook Report on Wednesday (May 16).

Up until March, consistent rainfall, the return of plentiful irrigation water supplies, and abundant home grown feed resulted in milk production in northern Victoria rising by 14% over 12 months.

Tasmania stepped up its output by 10%, while extra volumes were also generated in southeast Australia. Production in Queensland, central and northern NSW and Western Australia remained static or in decline.

Disruptions caused by last year's milk price war, sparked by Coles slashing the price of milk to US$1 a litre, and uncertainty surrounding processor milk requirements were undermining farmer confidence. Increasing fuel and electricity costs were also concerns.

Dairy Australia's analysis of current commodity price and exchange rate settings indicates an opening price of between US$4.05-4.40 per kilogramme milk solids for the start of the new financial year, down from between US$4.75-4.80 last year.

Nationally, 66% of 1,002 farmers surveyed by Dairy Australia said they felt optimistic about the future, down from last year's 69%.

Confidence in the industry varied regionally. Among Tasmanian farmers 91% said they were optimistic about their future, compared to just 43% of Queensland farmers who felt the same way.

Dairy Australia attributed the variation to different pricing and growth signals farmers received from the markets they served.