Wednesday, 09 November 2016 18:57

Conditions could tip us below 9 billion litres

Written by  Global Impact –John Droppert
Many dairy regions have been affected by heavy rain this season, with pastures and laneways damaged by the persistent wet and flooding in parts. (Alpha via Flickr). Many dairy regions have been affected by heavy rain this season, with pastures and laneways damaged by the persistent wet and flooding in parts. (Alpha via Flickr).

THE Australian dairy industry entered the 2016/17 season with a huge number of variables on the move.  

Farmgate milk prices had been cut and opening prices were lower again, the rain had come, and kept coming, and global supply and demand was easing just enough back into balance to tip off a market rally.  

Feed prices are coming down, but conditions have been tough, with pastures and laneways damaged by the persistent wet (and flooding for some).  

Silage has been harvested late in many regions, and cold weather through October has impacted pasture quality.  

Amidst a rapidly changing backdrop, the outlook for milk production remains subdued.  

Although a lower total compared to 2015/16 has always been forecast, the magnitude of the expected drop has varied as the abovementioned factors have shifted.  

What started out as a good season with tight margins has become much more challenging in many areas through spring.  

Until August, national milk production had followed the pattern expected to deliver Dairy Australia’s forecast 5% reduction in total intakes for the 2016/17 year.  

But then it stayed cold, and wet. 

Droppert chart 

From September onwards, conditions deteriorated, and the adverse weather caused an extra production impact in addition to the pre-existing dent from by low farmgate prices.  

Northern Victoria and southern NSW have been most heavily impacted, with excessive spring rain causing severe waterlogging, and upstream runoff bringing floods to low lying areas.  

Western Victoria and southeast South Australia have similar waterlogging problems, whilst Gippsland has been more moderate, with significant variation from the Macalister Irrigation District (largely dry) to the west and south of the region (wet).  

Across all areas, prolonged cold periods have stymied pasture growth, whilst quality of emerging leaves has been compromised.  

Delays to silage and hay cuts have also affected the feed value of harvested fodder, which threatens to dampen milk production when it’s fed later in the season.  

Wet weather, mud, and additional stress to herds has in all likelihood increased mastitis and diversion of milk due to cow treatment.  

Many farmers are reportedly opting to cull rather than treat cows with recurrent quality issues, due to tight margins and high cull prices.  

In many cases, high soil moisture levels and full irrigation storages will provide a significant dividend later in the season, however the mounting impacts of continued culling, late fodder harvests, pasture damage are increasingly offsetting this.  

So too is the continuation of significant year-on-year declines through October – by which time earlier forecasts had expected intakes to recover.  

A smaller portion of the season is left to cover a bigger gap, with additional headwinds. 

Recent step-up announcements have provided some hope that margins may open up in the second half of the season, which together with the prospect of good pasture growing conditions through the shoulder, could see the year-on-year gap narrow.  

This would be good news for processors looking to better utilise plants, especially if commodity prices continue to recover.  

Profitable milk volumes would also help offset some of the early season financial pain felt by farmers. 

It’s too soon to tell if this will come to fruition, but either way, September and October have set the scene for a bigger drop than previously forecast.  

Dairy Australia’s revised forecast covers a range of 6 to 8 percent down (relative to 2015/16), acknowledging that there is still room for upside, but that overall the balance has shifted to a lower milk volume outcome.  

In terms of total volume, this equates to a range of 8.8 to 9.0 billion litres for the 2016/17 season.  

The national year-on-year shift ranges from a drop of around 9% in Victoria (12% in the north), to a relatively stable 1% fall in Queensland.  

A sub-9 billion litre industry makes for a sobering concept, but until a few more factors swing in favour of milk producers, it’s a likely outcome.  

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