Australian dairy ‘climbing back off the canvas’

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After a difficult 18 months, Australian dairy businesses are expected to achieve a return to profitability in the 2017/18 season, according to a recently-released report.

‘The Australian Dairy Sector – Climbing off the Canvas’, a report from agribusiness banking specialist Rabobank, says extenuating circumstances have meant the recovery in global dairy markets is yet to flow through the value chain. However, some of the forces should dissipate in 2017/18, it says, and this will help deliver higher full-year milk prices for Australia’s dairy-exporting regions.

For dairy farmers selling to the domestic fresh-milk market, Rabobank Senior Dairy Analyst Michael Harvey says premiums remain elevated compared with export regions, with these regions largely immune from recent global forces.

“However, while the outlook suggests the price floor for fresh milk will be lifted in time – given the reduction in availability of milk for transport and improving export milk prices – it’s not all smooth sailing for those in the fresh-milk regions,” he said.

“The biggest risk facing dairy farmers in these regions hinges around security of their supply contract and the timing of contract renewal, which was evident recently with the supply imbalance in Western Australia.”

For the processing sector, Mr Harvey says that while better global prices have begun to flow through to higher revenues and improved profits, the biggest challenge will be the reduced milk intake.

“While we expect Australian milk production to increase by 4.5 per cent in 2017/18 – up from its lowest level in two decades – the competition to retain and grow milk supply will prove challenging,” he said.

“It could prove to be the biggest test for Australia’s largest dairy processor, Murray Goulburn, as to whether it can stem the loss of milk supply, resize its manufacturing operations and reposition itself as the market leader in setting farm-gate milk prices.”