Tuesday, 10 October 2017 09:20

Situation & Outlook: World moves slowly

Written by  John Droppert

Dairy Australia’s latest Situation and Outlook report will be released tomorrow, during what’s shaping up as a period of recovery for the Australian dairy industry amidst a noisy corporate and policy environment.

 

Milk production is beginning to show modest growth as farmers make the most of slightly higher farmgate prices, reasonable weather, and generally contained input costs.

None of these factors are universally better across all production regions, but the overall picture is one of incremental improvement, tempered by risk aversion and financial limitations that will take longer to overcome.

The broader market remains supportive of a gradual recovery. Internationally, dairy commodity prices reflect a relatively balanced supply/demand equilibrium, changing little over the past few months as business trickles along.

Butter prices remain near record levels, whilst skim milk powder (SMP) values continue to be suppressed by the large volumes held in European public storage.

Most other products are somewhere closer to ‘average’, and the combination of reasonable demand and re-emergent supply suggest they are likely to remain so.

International market balance has been maintained by slow growth in milk production across a number of key exporters.

In particular, European production remained below expectations due to sub-optimal weather through the northern spring and summer, and the post-downturn recovery in New Zealand has only recently begun to gather pace.

A market-driven acceleration in output is now underway in both cases, and the US – where production never really slowed – is once again eyeing international markets as the solution to a growing domestic surplus.

Dairy demand has shown welcome growth and remains supportive overall, with total volumes for the year to the end of June up by 4.1%, whilst value grew 7.1% in US dollar terms as commodity prices recovered through the period.

Whilst the rate of buying has been adequate to support prices in the current environment, a key concern amongst exporters remains the ability of the market to soak up additional volumes of milk as they appear.

This season’s Oceania spring peak is an object of particularly keen interest, coinciding with out of season supply pressure from the northern hemisphere.

The Australian domestic market has delivered some surprises, with total supermarket milk sales volumes growing by 2.5% over the 12 months to September, outpaced by a 4.6% boost in value on robust sales of branded milk.

Such growth in the sales volume and value of the fresh milk category in a well-established and mature market like Australia is unusual, given the ongoing decline in sales seen in comparable markets such as the United States and many European countries.

Flavoured milk sales continue to grow strongly, whilst dairy spreads volume growth moderated, in part due to retail price increases reflecting earlier moves in commodity markets.

Based on the combination of contained input costs and a modest improvement in farmgate milk prices, modest growth in milk volumes is expected in southern regions.

In domestic-focused regions, uncertainty and pessimism surrounding the direction of farmgate milk prices remains a feature, and recent weather conditions have generated extra challenges.

Ongoing financial and confidence impacts from previous years, together with a constrained herd and the potential for weather and input cost setbacks are likely dampeners to growth.

Dairy Australia’s forecast for 2017/18 milk production remains a growth range of between 2 and 3% on the 2016/17 total of 9.01 billion litres. This implies a forecast total of around 9.2 billion litres for 2017/18.

Whilst rumours continue to swirl in the corporate sphere, most farmers will be getting on with the task of shoring up their businesses following a financially and emotionally draining period.

Though not without challenges, both the international and the domestic market are delivering opportunities at the top line, and input prices have kept some of the pressure off costs.

In the current season, the importance of the investment headlines to farm profitability and ultimately milk production, will most likely be outweighed by the many lower profile idiosyncrasies currently at play in all of these markets. 

John Droppert is senior industry analyst with Dairy Australia. 

More like this

Moving from Bega to Gippsland to pursue dream

A fierce desire to grow their equity, and the unpredictability of the Bega seasons, has seen Tom and Gemma Otton take up a share farming role with Peter and Jeanette Clark at Kongwak.

Are your milking practices "normal"?

Recent milking time visits to a number of different dairy sheds have reminded me that “normal” means different things to different people.

Shelter leads to more pasture, more cows

Panmure dairy farmer Simon Rea has lifted herd size from 400 to 540 head and is growing 10% more pasture due to the cow shelter installed on his Panmure farm three years ago.

More from this category

National Foods closes cheese sites

National Foods will sell its cheese processing plants in South Australia and close its two Victorian plants within three years.  The moves were announced as part of a $132 million investment in Tasmania, aimed at rationalising the company’s cheese making business.

NZ payout drop delivers a 'sobering blow'

NEW ZEALAND dairy farmers will be forced to make more hard decisions in the season ahead, as the country’s processors slash their forecast farm gate milk prices to well below the cost of production.

Milk processors want you

International demand and expansion in local processing facilities has fuelled renewed competition between Australian processors for southern milk supply.

Scramble for precious water in WA

SOME 2200 megalitres of water might seem only a drop in the ocean for flood weary farmers in northern and eastern Australia but in the drought-stricken west every bit of a new allocation will be precious.

Progression plan a work in progress

Unfortunately, many families can't broach the topic of succession planning at the kitchen table, so it was refreshing to hear WA farmer Peter Evans discussing his family's approach in front of 200 people.

Floods bring New Year chaos to northern dairy industry

THE QUEENSLAND dairy industry is starting 2011 in chaos, swamped by New Year floods engulfing the State.The big wet which drenched Central Queensland in December moved to the southeast corner of the State with devastating impact in the second week of January.

PRIME MINISTER Julia Gillard is deliberately misleading Australians by claiming she wants to keep the Murray-Darling reform process on time, according to Coalition Murray-Darling Basin spokesman Senator Simon Birmingham.

 

MURRAY GOULBURN has taken up all of its rights in takeover target Warrnambool Cheese & Butter Factory’s (WCBF) $48 million entitlement offer.

 

THE HEAD of one of the world’s largest dairy cooperative wants the industry to do more to promote the goodness of dairy.

MURRAY GOULBURN has increased its prices by 35c/kg for protein and 14c/kg for butterfat – or $5.25/kg for milksolids – backdated to July 1.

ALTHOUGH AREAS of northern Victoria may remain under water for months, the amount of damage wreaked by the state’s floods is slowly being assessed.

Leave a comment

Make sure you enter the (*) required information where indicated.\nBasic HTML code is allowed.

» Get social

When butter and chocolate collide

TWO New Zealand companies Lewis Road Creamery and Whittakers have teamed up to deliver what must be every dairy lover’s dream: chocolate butter.

» E-Newsletter

Subscribe to our mailing list

* indicates required