Profitable conditions despite some weather challenges

The 2020/21 season proved to be one of most profitable for Australia’s dairy industry, according to Dairy Australia’s Situation and Outlook Report, December 2021.
Following a year of close to record returns, conditions remain supportive for farm profitability.

Dairy Australia Senior Industry Analyst Sofia Omstedt said: “Last year proved to be one of the most profitable in recent times, as most dairy regions reported their highest average returns since 2013/14, according to the Dairy Farm Monitor Project (DFMP). Gippsland and Tasmania were the only exceptions, where returns were the second best over this period, while in Queensland and NSW return on assets was the highest in over decade.”

“This helped improve the health of many farm businesses and several factors suggest this momentum can be maintained,” Ms Omstedt said.

Global dairy markets are contributing to this promising outlook, as commodity prices continue to rise. Global demand for dairy has improved as more countries re-emerge from lockdowns, at a time when supply is tight. Milk production has slowed in the main exporting regions this spring which has seen dairy commodity prices trend increase. Freight remains a challenge, and some importers have purchased more products to ensure supply, which has further supported commodity values.

Additionally, as most Australian COVID-19 restrictions ease ahead of summer, consumers are taking advantage of newfound freedoms, further buoying the domestic market. “Retail sales of yellow spreads and milk have stabilised from the panic-buying highs of 2020 but remain above 2019 levels and shoppers are also spending more money through foodservice venues,” said Ms Omstedt.

In Australia above average rain, storms and cold fronts have weighed on per-cow yields, caused flooding in some regions and disrupted harvest proceedings. Silage making efforts have been delayed in some regions and less hay is expected to be made this year. Nevertheless, with a significant amount of fodder left in store and plentiful pasture growth demand remains subdued. Wet weather has also helped to replenish water storage sites and the cost of temporary irrigation water has continued to fall.

While conditions remain supportive for ongoing farm profitability this season, Australia’s milk pool is unlikely to grow. In addition to weather disruptions, labour shortages present ongoing challenges. As such, strong competition for milk is also expected to remain a feature of the processing landscape going forward.

Dairy Australia’s quarterly Situation and Outlook reports summarise national milk production, key dairy consumption data and international market impacts on pricing. The December 2021 report is available here.

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