The Australian average farm gate milk price is forecast to increase by two per cent to 48.8¢/litre in 2021-22, according to Australian Bureau of Agricultural and Resource Economics and Sciences.
A new report from the body shows imports of dairy products are returning to pre-pandemic levels for Australia's major trading partners while global supply growth is forecast to decline slightly in 2020-21 following strong growth in 2019-20.
ABARES says competition among domestic milk processors for supply will continue to ease as production recovers from historically low levels, with international demand playing a bigger role in determining farm gate prices.
Australian milk production is forecast to increase by one per cent in 2020-21.
Milking cow numbers are forecast to rise by 2.7 per cent but average yield is expected to fall after three years of strong growth.
The expected yield decline is the result of forecast restocking, which involves retaining older cows and a higher proportion of young heifers as replacements.
Wetter than average conditions in 2020 led to increased pasture production, lower grain and hay prices and increased on-farm feed reserves.
An upward revision of prices from the Agricultural commodities: December quarter 2020 report reflects stronger than expected international demand for dairy products.
Butter, cheese and whole milk powder prices are forecast to remain relatively unchanged in 2020-21.
The skim milk powder price is expected to rise by 10 per cent due to a combination of a strong rebound in demand from China and lower than expected spring milk production in New Zealand.
Medium-term forecasts from 2022-23 to 2025-26 for Australian dairy are based on the average outcomes of four possible seasonal climate scenarios.
A very dry season in the wheat-sheep zone is likely to occur in one of the four years.
The upside scenario combines a faster economic recovery from the COVID-19 pandemic with another high rainfall year in 2021-22.
A very dry year is still assumed in 2022-23.
Because it follows an assumed wetter year, negative effects on production are reduced.
The downside scenario combines a slower than expected economic recovery with very dry years in 2021-22 and 2025-26.
Over the medium-term, the farm gate milk price is projected to remain relatively steady at around 49¢/litre in 2025-26.
It is expected to range between 48.9 and 51.3¢/litre under the forecast scenarios.