Monday, 21 August 2017 10:33

Production falls most severe in northern Vic, SA

Written by  Laurie Walker
Northern Victoria finished the year at around 1,750 million litres compared to 2,090 million litres the year before, a fall of 16.5%. Western Victoria and Gippsland finished the season down 4.2% and 4.0% respectively. Northern Victoria finished the year at around 1,750 million litres compared to 2,090 million litres the year before, a fall of 16.5%. Western Victoria and Gippsland finished the season down 4.2% and 4.0% respectively.

Australian milk production for the 2016/17 season totalled a little over 9000 million litres compared to the 9680 million litres produced during the 2015/16 season, a fall of 6.9%.

Broadly, the season has been one gradual and unsteady recovery, with monthly milk volumes down more than 10% at the beginning of the season.

Over the course of the season, these milk volumes have been slowly and unevenly closing the gap. Volumes for the final month of the 2016/17 season were up 2.2% on last year.

The changes in milk volumes have been uneven, with the predominantly drinking milk states of Queensland and Western Australia finishing the season up 1% and down 1.9% respectively.

Whilst these states face their own unique challenges, they are somewhat separated from the more processing and export-oriented southern milk pool, and consequently were not directly affected by the late season price-step downs.

The most severely affected states have been Victoria and South Australia, down 8.0% and 8.2% respectively.

Furthermore, within these states performance this season between regions has been fairly divergent.

In South Australia, most of this decline was due to lower volumes in the southeast around Mt Gambier, which accounts for over half of the state’s production.

Volumes out of Mt Gambier were down over 11% to around 270 million litres, while the rest of South Australia’s milk production was by significantly less, around 4%.

Given the smaller milk pool available in southeast South Australia, the recent increases in processing capacity by Warrnambool Cheese and Butter and the new Union Dairy Company facility in Penola it seems that beyond recent headlines, there will be an ongoing struggle to secure supply and maintain a presence in the region.

Within Victoria a similar divergence can be seen in the difference in performance between northern Victoria, and the west coast and Gippsland regions.

Northern Victoria finished the year at around 1,750 million litres compared to 2,090 million litres the year before, a fall of 16.5%. Western Victoria and Gippsland finished the season down 4.2% and 4.0% respectively.

With the significant fall in volumes out of northern Victoria, the region’s share of Victorian milk production has fallen to around 30%, which contrasts with a highpoint of 41% in 2001/2002, while Gippsland and western Victoria have both increased their share of milk production.

Part of this may be explained by relative costs of production between the regions. Lower input costs in the form of cheaper hay and feed grain, fertiliser and temporary water prices throughout 2016/17 provided some relief to farmers.

Many producers were intent on repairing their balance sheets, and so deferred as much on farm expenditure as they could.

Preliminary data from the Dairy Farm Monitoring Project suggests that the cumulative effect of this has been to lower costs of production in some cases by as much as $1kg/MS across Victoria.

After these significant improvements, costs of production for western Victoria and Gippsland were broadly similar, however, even after significant falls, those same costs of production in northern Victoria were still considerably higher.

The gradual drift towards higher cost production systems in northern Victoria, with extra risks associated with irrigation and feed prices pose an ongoing challenge to stabilisation and profitable growth of the industry in the region.

Coming off an extremely dry June, and with forecasts suggesting a dry spring is likely temporary water prices, as well as prices for hay and feed grain have all started to move upwards.

Whilst the global market looks more balanced than any time in the last two years, these looming seasonal conditions may yet curtail the 2%-3% recovery in milk volumes DA has projected.

Laurie Walker is industry analyst with Dairy Australia.

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