The report said record profits were recorded in some regions last season, and high farm gate milk prices this season bode well for farmers.
Meanwhile there are some challenges such as high production costs, Australia’s competitiveness with dairy products and economic constraints on consumers.
The good news for Australian dairy is that the impacts of El Niño may not be as severe on milk production at the national level as past events, the report said.
While several northern regions have already dried out, some moisture has been retained in areas across southern Australia. Weather conditions are significantly different to this time last year, and it shows through the moderate production growth recorded in every month of this season.
Australian dairy farmers in several regions made record profits during the 2022-23 season, strengthening progress towards Dairy Australia’s target of at least half of farming businesses achieving $1.50/kg of milk solids EBIT (earnings before interest and tax) over a five-year average.
The latest Dairy Farm Monitor Project results indicate that last season’s significant weather challenges contributed to a substantial rise in total farm costs.
Supplementary feed was brought in at high rates to combat weather damage and many farmers reported increased labour costs, in efforts not only to attract employees but also retain them.
“The Australian dairy industry enjoyed record profitability last season and is still benefiting from high farm gate milk prices this season, as well as strong retail revenues,” Dairy Australia’s industry analyst Eliza Redfern said.
“High production costs, Australia’s price competitiveness of dairy products and economic constraints on consumers are emerging risks,” she said.
“These challenges will be a focus over the rest of the season, in anticipation of Australian and global markets moving towards equilibrium.”
The cost of producing milk remains high this season, the Situation and Outlook Report found.
Feed prices remain under pressure due to average yields this harvest and strong demand for supplementary feed, while temporary water prices have risen.
Recent developments relating to the Murray-Darling Basin Plan have also raised the prospect of reduced water availability for dairy in the longer term.
Geopolitical tensions also continue to weigh on farm input markets, with both grain and fertiliser markets still influenced by the Ukrainian conflict, despite the increased fertiliser supply which has seen global indicative prices drop between 20 and 40 per cent below October 2022.
The conflict between Israel and Hamas in the Gaza Strip has also had minor impacts on oil prices.
The report said dairy export commodity prices had seen some recovery in recent months, led by a contraction in exportable product globally.
Global demand remains quiet, however, and will likely limit further price increases.
Local demand across both Europe and the United States has increased in the lead up to the end of year holidays, diverting tighter milk supplies to respective domestic markets.
Additionally, lower farm gate milk prices in all key exporting regions (apart from Australia) have weighed on milk flows.
Global demand, however, remains quiet and will likely limit significant export price recovery.
The Situation and Outlook Report also confirms that Australia is becoming a much more prominent dairy importer, shipping in the largest volume of overseas dairy in a single season during 2022-23.
In 1999-2000, imported products accounted for 11 per cent of Australia’s dairy consumption, whereas last season, 27 per cent of dairy consumed was from overseas.
With Australian farm gate prices keeping prices of the local product high, imported dairy has proven increasingly attractive to businesses and consumers looking to limit cost pressure.
This growing pressure from overseas dairy products is a sign that deviation from global markets is a temporary phenomenon and will likely have implications for next season’s farm gate milk prices, the report said.
Dairy in a retail setting continues to see significant total value growth, ranging between nine and 14 per cent depending on the category.
Total volumes sold in most key dairy categories, continue to fall with Australian households shopping more frequently but buying less product in each shop.
For more information and to view the latest Situation and Outlook Report visit: https://www.dairyaustralia.com.au/sando
