Positive fundamentals amidst challenges

Strong farm finances, stable milk prices and a resilient domestic market for milk and yoghurt could help mitigate the effects of inflation and widespread spring flooding according to the December 2022 Situation and Outlook Report from Dairy Australia.

Profitability remained above long-term averages in 2021/22, according to the Dairy Farm Monitor Project. This season, milk prices are, on average, higher and livestock trading conditions continue to be strong. However, rises in key input costs could outweigh the increase in gross farm income.

Despite inflationary pressure, Australian consumers are still buying dairy with sales of fresh milk and yoghurt up 0.3% and 0.9% respectively for the year to October 2022. Rather than forego dairy, consumers have begun to adjust their purchase decisions - buying products on promotion (specials) and trading down to private label products. Dairy remains a staple, with 98% of Australian households buying milk[1].

“The report found staffing is still an issue and identified an increased reliance on farm owners and family members as unpaid labour,” said Dairy Australia’s Industry Insights and Analysis Manager, John Droppert.

“We have also seen a greater investment in labour saving technologies such as robotic milking systems and cow monitoring collars.”

The eastern states have experienced widespread spring flooding and wet conditions. The full impact on forward milk volumes is difficult to assess at the current time yet Australia’s milk production outlook for 2022/23 will almost certainly be revised downwards.

There have also been significant impacts on grain and silage supplies.

“While there is potential for opportunistic access to downgraded product, the overall effect will likely push feed prices higher – especially for high quality product,” said Mr Droppert.

From an overseas perspective, milk intakes are growing in the northern hemisphere while the New Zealand milk pool is constrained with similar feed costs and labour challenges to Australia.

Demand in China is likely to remain subdued suggesting that global dairy commodity prices are likely to be under some pressure in the New Year.