By Eric J. Brooks

 

 

It was a better than expected year for Australia's dairy industry but the sector remains beset by many problems. After producing 9.80 million tonnes of fluid milk in 2015, El Nino-induced arid weather made for dry conditions in the first half of last year, particularly in Victoria and New South Wales, which account for most of the country's milk production.

 

It slashed fluid milk output 4.6%, to a USDA estimated 9.35 million tonnes in 2016, but it could have been worse: Thanks to a wetter than expected conditions in late 2016, production exceeded the 9.2 million tonnes initially forecast. 2017 began with highly favorable temperatures and healthy rains, bringing the new year off to a better-than-expected start. Even so, output is projected to fall to another 2.5%, to 9.1 million tonnes –but even this is an improvement from the 8.9 million tonnes forecast earlier in the year.

 

While favorable first and second quarter rainfall made for an improved forecast, this is a shadow of what Australia can produce. This year's projected 9.1 million tonnes is down 7% from the 9.80 million secular peak achieved two years ago and 21% below the 11.6 million tonnes achieved back in 2002. This is the smallest quantity of fluid milk produced by Australia since 1997.

 

Although arid El Nino conditions are anticipated in H2 2017, far more than drought holds back Australia's milk production.

 

First, 2016's dry conditions coincided with a third consecutive year of low export prices following the 2014 market crash. Reflecting poor export prices, Q2 2016 saw leading dairy processor Murray Goulborn cut its farmgate milk solids price from A$6.00/kg (US$4.50/kg) to A$5.50/kg (US$4.13/kg).

 

In April of this year, Murray Goulburn again slashed its farmgate milk solids price, this time to A$4.70/kg (US$3.53/kg), warning that it would only rise to around A$5.20/kg-A$5.40/kg by the end of the 2017-18 financial year. This is a steep fall from a milk solids price of A$6.79/kg (US$5.10/kg) a few years ago, just before world dairy entered its current depressed phase.

 

In an interview with Australian Broadcasting Corporation, Murray Goulburn CEO Ari Mervis cited the need to cut costs and recent closure of three dairy processing plants. He noted that, "Whole milk powder and particularly skim milk powder remain under their ten-year averages."

Second, while farmgate milk prices have fallen 31% over four years, John Hunt, a dairy farmer and spokesmen for the South Australia Dairy Farmers Association, states that production costshave risen 25% over this same time. This combination of 31% milk price deflation and 25% production cost inflation has devastated Australian dairy farming returns and milk output, particularly among smaller producers.

 

The full article is published on the July- September 2017 issue of DAIRY BUSINESS WORLDWIDE. To read the full report, please email to inquiry@efeedlink.com to request for a complimentary copy of the magazine, indicating your name, mailing address and title of the report.