Australia Dairy Market Insights: August 2024

This would place the 2023/24 season’s total milk production at approximately 8.3 to 8.4 million liters. While this represents a 3% year-on-year increase, it remains around 5% below the historical average.

Seasonal conditions across Australia have varied, impacting production differently by region. Notably, parts of Victoria and South Australia experienced some rainfall in July, which has supported pasture growth, though hay and grain supplies remain tight. Increased freight costs to source feed from more distant areas have put additional pressure on margins. While a wetter spring outlook is anticipated, it may arrive too late to significantly impact the peak production period from September to January. Current projections suggest that milk production for the 2024/25 season will be comparable to or slightly below last season’s levels.

New Zealand’s Production Challenges:
New Zealand continues to face challenges due to an El Niño weather pattern, which has adversely affected milk production. June milk output was down 1.1% year-on-year, leading to a downward revision in production forecasts. Tight supply conditions in New Zealand are currently supporting higher prices. The New Zealand Stock Exchange has revised its milk price forecast to NZ$8.66/kg MS, which, at current exchange rates, places New Zealand’s farmgate prices at around AUD$7.95. This narrowing price gap with Australian farmgate prices, now only 1.9% higher, contrasts sharply with the 33% premium seen in the 2023/24 season.

Global Dairy Market Dynamics:
The global dairy market remains volatile, with export demand fluctuating and impacting pricing. Global Dairy Trade (GDT) prices have risen year-on-year, with Skim Milk Powder (SMP) and Whole Milk Powder (WMP) up 3.5% and 13.8%, respectively. However, inconsistent demand has prevented sustained price increases.

Butterfat and cheese products are experiencing stronger support, with global butter prices up 38.7% and cheese prices up 9.3% year-on-year. Australia has benefited from increased cheese demand, with export values in the 2023/24 season reaching a record high of $1.12 billion, despite volume being the ninth highest in the past decade. The competitiveness of Australian cheese, bolstered by lower farmgate prices, is expected to continue driving export demand.

Farmgate Prices and Industry Outlook:
Australian processors have largely maintained farmgate prices at levels similar to the opening bids for the 2024/25 season. The average weighted farmgate milk price currently stands at around $8.10/kg MS, which is approximately 9% below last season’s opening prices and 15% below closing prices. The Australian Dairy Products Federation has defended these price reductions, citing increased dairy imports and the need for competitive pricing against global markets. They also note that current prices are still 13% higher than in 2019. However, producer groups, led by Australian Dairy Farmers President Ben Bennet, argue that rising production costs, including a 42% increase in fertilizer prices since 2019, have eroded these gains. Additionally, securing labor has become more challenging post-COVID.

While global dairy prices are up year-on-year, significant step-ups in farmgate prices are not expected this season. Minor adjustments may occur if supply tightens as the year progresses, but substantial increases to align with global markets are unlikely.