Improved conditions boost farmer confidence and milk production

One of the best autumn breaks of recent times has supported a significant recovery in national milk production and boosted dairy farmer confidence in many regions, according to Dairy Australia’s June 2020 Situation and Outlook report, against a backdrop of uncertainty in dairy markets from COVID-19.

After a challenging start to the season, national milk production has increased year-on-year for the past five months to April, leading Dairy Australia to moderate its milk production outlook for 2019–20 upwards to a drop of just 1-3% on last year to between 8.5 and 8.7 billion litres in total.

While COVID-19 has negatively impacted global demand and commodity pricing due to markedly reduced activity in food service channels like restaurants and cafes, Australian retail demand rose as consumers stocked up on dairy products. Long life milk sales surged 76% at the outset of the virus and fresh milk, yellow spreads, cheese and yoghurt sales volumes remain elevated.

“Better conditions and improved confidence have resulted in a significant recovery in Australia’s milk pool,” said Dairy Australia’s Senior Industry Analyst, Sofia Omstedt. “With more manageable input costs, generally favourable seasonal conditions and relatively strong farmgate milk prices this season, overall industry confidence has improved.

“The initial spike in retail sales due to COVID-19 indicates strong underlying demand for dairy. However, Australia is not immune to the growing headwinds facing global markets. The economic fallout of the crisis is expected to generate reverberations and reduce consumers’ purchasing power in key markets,” she said.

The report notes that Australia’s milk production recovery remains localised and is mainly driven by strong growth in Tasmania and Victoria. Challenges remain for farmers in some areas after two years of dry conditions and high costs.

Favourable weather conditions have supported improved farmer sentiment. Conducted in February, the 2020 National Dairy Farmer Survey included in the report shows that 44% of farmers are positive about the industry’s future, up 10% from last year. More farmers are feeling confident about their businesses, see production increasing and expect higher profits. A supplementary survey in early May showed around 20% of farm businesses had been impacted in some capacity by COVID-19, such as sourcing farm materials.

Internationally, the spread of COVID-19 slowed exports to China, upset global markets and saw commodity prices drop. Whilst the initial panic that followed the outbreak has begun to settle, global dairy demand remains under pressure. China’s re-entry into the dairy trade in April has been a welcomed sign, however demand from other regions has also been impacted during this period.

The drop in global demand, combined with an increase in supply from some key milk producing regions, has resulted in supply chain disruptions and milk dumping in the northern hemisphere along with increased export competition in key overseas markets.

Current weather forecasts bode well for a further easing of key input costs for feed and water. While new minimum farmgate milk prices announced on 1 June as part of the Dairy Code of Conduct exceeded some earlier expectations, they will represent a decrease compared to the current season pricing for most farmers. This highlights the importance of lower costs to support farm profitability across all regions.

Read the full June 2020 Situation and Outlook report.

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