Milk pool to stabilise, prices to stay strong, says Dairy Australia

In its annual May 2023 Situation and Outlook Report, DA says workforce challenges and farmer exits will continue to weigh on production.

But there was also some potential for growth, DA analyst and report author Eliza Redfern said.

"We are forecasting milk production is likely to remain steady, during the upcoming season, relative to the 2022/23 season volumes," Ms Redfern said.

"We are still in line to reach that forecast of a drop in 4-6 percent this season."

That would mean a production figure of around 8 million litres, nationally.

"But there is some modest potential for growth and I think part of that is around better seasonal conditions, as well as reduced culling - beef prices have reduced over recent months.

"There is also some genuine expansion of businesses, in some regions."

The national dairy farmer survey showed about half of all businesses were in a "stable" phase, so there was an appetite for investment in growth.

That was particularly the case in northern Victoria, with lower water prices after three consecutive La Nina events and a growing interest in "herd" housing.

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DA was also predicting above average farmgate milk prices, in the upcoming season, due to strong competition from processors.

"Falling export commodity prices are impacting dairy processor returns and incentivising imports, but a tight milk pool ensures the need for supply is strong," the outlook said.

"Depressed dairy export commodity prices are impacting returns for processors and incentivising imports, but a tight milk pool has led to historically high prices paid to farmers nonetheless.

"Whilst the strain has been significant on manufacturing margins, the need for milk remains just as strong."

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The report comes as the latest milk production report shows a national decrease of 1.7 per cent on April 2022 and 5.9pc year-to-date.

In Victoria, production was down 4.9pc, or 17,409 million litres, compared with April 2022.

The April figures show it was down 6.9pc for the financial year to date.

Mild autumn conditions had helped ease some of the decline in farm exits, with the milk pool on track to end the season within the 3-6pc forecast range, Ms Redfern said.

"Looking ahead, labour is still a key constraint but there have been reports of this easing slightly in Victoria," Ms Redfern said.

"High land prices are still attractive for many, particularly in Gippsland where the region continues to get significant development attention."

There were reports of limited appetite for business growth in southwest Victoria.

"Nonetheless, fertiliser prices have eased (particularly for urea), beef values have declined and live dairy heifer export demand has softened, so medium-term prospects for production are a bit more positive," she said.

DA found consumer purchasing power had tightened and high-priced plant-based products were taking a hit.

"There are now less households purchasing plant-based beverages, with more households (58.7pc) exclusively buying milk," Ms Redfern said.

"Competition has become an increasingly important driver for the Australian dairy industry.

"While firm Australian export commodities are potentially opening the door to reduced export market share, the domestic market has provided an avenue for robust returns for processors."

Considering large-scale changes to shopper behaviours, dairy continued to generate significant value through the retail sector, proving more sustainable compared to its plant-based competitors

"The dairy supply chain remains intact despite macroeconomic disruptions, and processors' thirst for milk is likely to support firm farmgate milk prices next season, as Australia's milk production finds its way back to stability."

The National Dairy Farmer Survey (NDFS) indicated the vast majority of Australian farming businesses (86pc) expected to be profitable this season, after being offered historically high farmgate milk prices.

At the same time, 84pc were feeling positive about their own businesses.

"With past downturns and recent seasonal surprises in mind, many are taking a conservative approach, prioritising business stability over expansion as labour and weather challenges continue to weigh on growth," the report said.

Climate was a concern for 40pc of Australian farm businesses - partly driven by the unpredictability experienced over recent seasons.

"However, previous wet seasons have helped prepare the dairy industry for the drier conditions of an El Nino event likely to form later this year," Ms Redfern said.