For Australian Farmers, Record Milk Prices, High Costs Mean Lower Output

Record high farmgate milk prices in Australia continue to be weighed down by high input costs and a dry weather outlook for the remainder of the year, according to Dairy Australia’s October “Situation and Outlook” report.

For many farmers in southern Australia, good early-season rainfall has provided a head start on pasture growth and fodder conservation, but those in drought-affected areas farther north are facing a second season with few palatable options, the report pointed out.

As milk processors grapple with how to secure required milk flows, dairy commodity prices have remained more buoyant than many previously anticipated. Well-balanced supply and demand fundamentals have kept prices on an even footing, and in some cases (particularly skim milk powder) delivered increases.

The disruption associated with the US-China trade dispute and the potential for a surge in New Zealand’s supply remain the key price risks for the coming months, the report said.

In the face of ongoing challenges, farmers have continued to cull stock. With a substantially reduced milking herd, the outlook for Australian milk production suggests a further decrease throughout 2019-20.

High production costs are weighing further on this, particularly in regions where a lack of timely rainfall, high irrigation water prices, or both, have made even homegrown fodder expensive.

For the season to August, Australia’s milk production was down 6.9 percent compared to a year earlier, with significant differences between regions.

Dairy Australia’s current forecast is for a decrease in national milk production of between 3 percent and 5 percent relative to 2018-19, implying a total of 8.3 to 8.5 billion liters for the 2019-20 season.

“Australian dairy farmers have entered a season of record farmgate milk prices; however, milk production has continued to contract due to ongoing high production costs and dry conditions in many areas,” commented John Droppert, Dairy Australia senior industry analyst.

“This season’s farmgate milk price will provide some farmers with the chance to make up some ground financially; however, high costs of feed and water and ongoing drought will continue to hold back profitability. Whilst these challenges persist, milk production is likely to remain subdued,” Droppert added.

David Nation, Dairy Australia managing director, said the dry weather outlook for the remainder of the season was concerning.

“The outlook for continued dry conditions is likely to see ongoing pressure on feed costs,” Nation said.

Milk production from other key global dairy exporting regions has remained subdued, the report noted. Markets are well placed to absorb additional supply as...

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