Situation and Outlook June 2017

Australian dairy farmers hit by farm-gate price cuts and tough seasonal conditions in the last 12 months can be cautiously optimistic about improvements for the season ahead. Dairy Australia latest Situation and Outlook report found the difficult 2016/17 season experienced by some farmers in the southern export-focused states caused cashflow management challenges that impacted farmer confidence and milk production. However, Dairy Australia Senior Analyst John Droppert said the broader market provides some positivity with costs for major inputs contained and most farmers current milk price forecasts improved on 2016/17 levels. Confidence about the future of the dairy industry among farmers measured by the National Dairy Farmer Survey (NDFS) and conducted in February and March has dropped from 67% in 2016 to 53% in 2017. The survey also revealed profitability is at a three year low – 45% of farmers surveyed anticipated a profit in 2016/17. National milk production for the 2016/17 season is also expected to be down about 7.5% on the previous financial year to about 8.95 billion litres. The NDFS survey revealed a third of farmers expected to grow their herd size in the next 12 months and close to two-thirds anticipated their production to increase in the next three years which signals a modest growth in milk volume to around nine billion litres for the season ahead. Input costs are a more immediate bright spot. Record international production and strong harvests in Australia have kept grain prices contained. There has been little change to the hay market in the last few months with subdued demand, ample supply and low prices. Most irrigation systems are expected to receive a high seasonal determination in 2017/18, and temporary water prices ended the 2016/17 season well below the $100/ML mark. Internationally, improved margins have halted the fall in milk production in most exporting regions and overall demand for exports continues to grow with the volume of dairy products traded over the twelve months to February boosted by 3.8%. A recovery in demand from Greater China accounts for around 30% of this, while south-east Asia has also seen growth. Tonnages exported to the Middle East and North Africa, as well as Japan, have eased slightly.