Page 34 - Food & Drink Magazine Jan-Feb 21

DAIRY BUSINESS
Weathering the storms
After a tumultuous year, the Australian dairy industry is on track to see consecutive seasons of profitability. Rabobank dairy analyst Michael Harvey provides a forecast.
THE Australian dairy industry finished 2020 in a reasonably strong position despite the challenges confronted. The year started with some dairying regions battling bushfires. The supply chain then needed to navigate a global pandemic. In the wash-up, the industry weathered the storms well and has a strong foundation heading into a new year.
The industry is on track to see consecutive seasons of dairy farm profitability. Seasonal conditions in 2020/21 have been favourable for most Australian dairy farmers, with the outlook remaining positive with a La Niña underway in the tropical Pacific. The Bureau of Meteorology forecasts January to March 2021 rainfall to likely be above average across most of Australia.
Purchased feed prices are lower than a year ago,
and with a sizeable winter crop harvest underway, it is likely to support cheaper feed bills through the rest of the season.
Australia’s long-awaited grain production recovery is here. After three successive years of below-average production – nearly 30 per cent below in the case of 2019/20 – Rabobank estimates Australia is on track to produce 47.4 million tonnes of winter grains, oilseeds, and pulses this year. This means local grain prices will be down notably year-on- year, but with supportive global pricing and some local withholding we expect wheat prices to remain near to five-year averages in 2020/21.
Importantly, farmgate milk prices are supportive of farmer
margin. Across the southern export regions, farmgate milk prices were at record levels in 2019/20. While current milk prices in the 2020/21 season are lower, they are still elevated and above break-even for most farmers.
At the end of 2019/20, Australian milk production was less than nine billion litres. The industry had lost around one billion litres of supply (10 per cent) through the previous four seasons due to the impact of drought and market disruptions. A recovery is underway but there are some limiting factors for a quick recovery to Australian milk production, such as the national herd. Cull cow prices remain elevated. The rate of culling has slowed in recent months, but is coming off an extended period of increased cull rates through the drought period.
IMPROVING CONFIDENCE
All these factors are feeding through into improved confidence. Rabobank’s December Rural Confidence Survey showed a strong lift in confidence levels among Australian dairy farmers and in investment intentions. The signs of a stabilisation, then recovery, in milk production is evident. In the first four months of the 2020/21 season, milk production has expanded by 1.6 per cent.
There has been growth in all key dairy production regions on the east so far. The season has passed its peak (October) and Rabobank has trimmed the full-year growth forecast slightly, but is still expecting milk production growth by two per cent for the full-year, reaching 8.95 billion litres.
The latest data showed some important shifts in the use of milksolids. In 2019/20 Australian manufacturing