The dairy industry’s fortunes have been on a recent high with good seasonal conditions and continued demand for milk helping boost production and buoy milk prices.
Importantly, farmgate margins are on track for a solid season in 2022/23, writes Rabobank’s Australian-based senior dairy analyst Michael Harvey.
However, there was a tail to the season with a rapid fall in milk production as the 2021/22 season drew to a close. Milk production finished the 2021/22 season 3.9% lower, with the declines worsening over the final three months.
Production was down year-on-year in every state/region. But Mr Harvey says the footings are in place for a supply recovery in 2022/23.
However, he says the recovery will be modest, with a slow herd rebuild being the major handbrake. There is good availability of irrigation water, healthy soil moisture profiles, and ample and supplementary feed.
Keyvariable costs are at elevated levels but have softened from recent peaks. Rabobank is forecasting a marginal increase in milk production (up by 1.1%) in the 2022/23 season.
Irrigators in the Southern Murray Darling Basin have healthy water availability with some determinations in the new irrigation season reaching maximum levels at the earliest stage of a season for more than two decades.
The current seasonal outlook suggests a wetter-than-average spring across most dairying regions. The likelihood of a La Niña returning is also increasing.
Importantly, farmgate margins are on track for a solid season in 2022/23. Milk prices are largely locked-in at record levels across all states and regions. Across the Southern Export regions, milk farmgate prices are in the range of $9.50–10.00/kg (milk solids).
Rabobank does not foresee further upside in milk prices in the current season given the weaker commodity market settings.
Australia's dairy export sector has also had a strong year. Total dairy volumes were 18% higher in the 2021/22 season. There were volume increases across the board, but with notable large gains in liquid milk exports (to China) and skim milk powder. The strong result is against a period in 2021 when supply chain disruptions and weak import demand was evident.
Mr Harvey said dairy exporters will be keeping a close eye on the performance of the Chinese and Southeast Asia consumer markets as economic conditions weaken.
“Food inflation is at decade-highs in Australia. It is broad-based across most food categories,” he said.
“Australian dairy consumers are seeing higher retail prices as dairy companies take pricing action in response to the jump in milk prices and other cost pressures. Retail fluid milk price increases have been as much as 15%.”
Dairy consumption has remained resilient for now but with a ‘watch’ on consumer behaviour in the coming months determining longer term demand and pricing projections.
