Mixed message for dairy: DA

Dairy reset is starting: DA


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The balance in global dairy supply and demand has improved markedly in recent months, while closer to home farmers are seeing some improvement in drivers of farm profitability, according to Dairy Australia’s (DA) February 2017 Situation and Outlook report.

The balance in global dairy supply and demand has improved markedly in recent months, while farmers were seeing a drop in costs, according to Dairy Australia’s (DA) February 2017 Situation and Outlook report.

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DA senior analyst John Droppert said international dairy commodity prices for most products were back above five year average levels.

But he said while the costs of major inputs continued to fall – with big grain and hay harvests bolstering supplies - lower costs were yet to translate into improved farm gate prices.

“The headlines are really good, but on farm that still has some time to come through; its still pretty tough out there,” Mr Droppert said.

“It’s only partly come through, there’s been a few step-ups but it hasn’t translated to margins.

“Farmers obviously aren’t making money; you can have all the positivity in the market, but it doesn’t make any difference for them.”

It’s only partly come through, there’s been a few step-ups but it hasn’t translated to margins, so farmers obviously aren’t making money. - John Droppert, senior Dairy Australia analyst

Mr Droppert said while production margins remained tight or negative, many farmers faced a significant task rebuilding equity, after the past 12 months.

He said the overhanging issues from the events of 2016 would not be erased overnight.

It could take up to six months to see the uptick in commodity prices reflected in farm gate returns, while challenges surrounding confidence and trust remained big impositions for many farmers.

“Improved farmgate profitability will help, and the current market settings look conducive to delivering this, albeit not without risk given the threats posed by resurgent supply growth internationally and broader political and economic disruption.”

The year on year drop in Australia’s milk production had moderated, from more than 10 per cent for the first four months, to 8.5pc for the July to December period.

Dairy Australia expected the gap to narrow further but remain significant, forecasting full season production to be down 6-8pc on the 2015-16 total of 9.5 billion litres.

In the wider international market, the balance between supply and demand pressures was keeping commodity prices stable in the short term, after a steady recovery during the second half of 2016.

“Sentiment drove the recovery, and the fundamentals have since caught up,” Mr Droppert said. “The question is: what next? A period of consolidation around current commodity pricing seems likely.”

The global milk supply picture remains cautiously positive for sellers, with only the US currently showing growth amongst the major exporters.

New Zealand and the EU warranted close watching, but for now, milk flows in both regions were likely to remain constrained.

Global dairy demand presented a mixed, but overall positive, picture. The volume of dairy products traded over the past twelve months to the end of October 2016 rose by just over seven pc, with a recovery in demand from Greater China accounting for around a third of that growth,” Mr Droppert said.

“The value of global exports was down by 14 pc though, with falls across all major markets except Greater China, reflecting the lower global prices for key dairy commodities for much of the year.”

Domestically, dairy sales in supermarkets outgrew the rate of population increase (1.4 pc) for each of the major categories, except yoghurt.

POSITIVE SIGNS: John Droppert, Dairy Australia senior analyst, said international dairy commodity prices were back above five year average levels. PHOTO: Andrew Miller.

POSITIVE SIGNS: John Droppert, Dairy Australia senior analyst, said international dairy commodity prices were back above five year average levels. PHOTO: Andrew Miller.

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