Dairy industry outlook is positive
With farmer confidence and consumer optimism high, much of Australia’s dairy industry has been riding on a wave of positivity over the past few months, according to Dairy Australia’s June 2021 Situation and Outlook report. Improved operating conditions, robust domestic demand and supportive global fundamentals have continued to underpin a reasonably strong market outlook.
Dairy Australia Senior Industry Analyst Sofia Omstedt said: “A vast majority of farm businesses are expecting to make an operating profit this season, and having seen favourable weather conditions, industry confidence has bounced back. Several factors, including higher opening milk prices in 2021/22, suggest this momentum could be maintained well into next season.”
Favourable operating conditions have had a substantial impact on industry sentiment, as demonstrated by the latest National Dairy Farmer Survey (NDFS) which shows that 64% of farmers are feeling positive about the future of the dairy industry, up 20% from last year. Furthermore, 88% of respondents are anticipating making an operating profit in 2020/21, with 63% of these farmers expecting profits to be higher than the five year average.
National milk production is expected to be stable in 2020/21, with minimal volume change compared to the season prior. Looking ahead, several factors point to possible modest milk production growth in 2021/22.
Dairy Australia’s initial forecasts suggest 0% to 2% growth relative to this year, which would equate to a national milk pool of between 8.80 and 8.97 billion litres. In light of otherwise supportive conditions, high beef prices and strong land values have continued to weigh on the national dairy herd and encourage farm exits, whilst flooding and the ongoing mouse plague have presented acute issues in the affected areas. The lack of available workers remains a concern across the country.
Consumer optimism is high with life in Australia starting to return to a pre-pandemic ‘normal’ (notwithstanding intermittent lockdowns and restrictions on movement), prompting recovery in foodservice spending and domestic dairy markets. There is an increased demand for branded products over private label variants, which is seeing the sales value of all major dairy products soar. Consumers are, however, going to the store less often and buying more items and bigger packs when they do.
Globally, milk output from the four largest exporters - New Zealand, the US, the European Union (EU) plus the UK, and Australia - has been steadily increasing. Growth rates have ranged between 1% and 2% for much of the past year. Global demand has so far absorbed the additional milk produced, by outpacing supply growth. Greater China (China, Macau and Hong Kong) remains the key driver of this. In light of otherwise strong fundamentals, the COVID-19 pandemic continues to challenge market dynamics.
Whilst global fundamentals remain positive for the Australian industry, the ongoing labour shortage remains a concern and any deterioration in feed supply also presents a risk. Overall, most factors suggest another favourable season ahead.
Dairy Australia’s quarterly Situation and Outlook reports summarise national milk production, key dairy consumption data and international market impacts on pricing. The June 2021 report is available at www.dairyaustralia.com.au/sando