In Focus: Dairy January 2017

2016 was a very tough year for many Australian dairy producers, with farmers beginning the year amid extremely dry conditions in key dairy regions and steep cuts to farmgate prices

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Key points:

  • 2016 was a very tough year for many Australian dairy producers, with farmers beginning the year amid extremely dry conditions in key dairy regions and steep cuts to farmgate prices. However, since the middle of 2016, we have seen steady improvements in both global prices and local seasonal conditions.
  • Global Dairy Trade auction results began to pick up in July last year. NAB’s weighted dairy export price indicator now shows AUD denominated dairy prices at their highest level since March 2014. It is fair to say that the speed of this recovery exceeded our expectations, and we note that export prices are now nearly 30% above the long run average level from 2010 to 2016.
  • Data showing falling milk deliveries in most major exporters has been a key driver of the recovery. November production for New Zealand was down 4.5% year on year, October production for the European Union was off 2.9% year on year. The United States remains an outlier as cheap feed corn continues to underpin lower input costs. US production was up 2.4% year on year in November.
  • Australian milk production plunged last year, with October deliveries down 11.4% year on year. Production for the first 10 months of 2016 is down 7% and the ongoing impact of lower farmgate prices is clearly a major factor in lower Australian production. While the rally in international markets should see some further upside at farmgate, it is unclear whether production will respond as the seasonal peak is now over. If milk deliveries continue the pace set last year, 2016-17 seasonal production will be down 8.2% to 8.7 billion litres. Even if production recovers this year, seasonal production will likely still be down around 5%.

For further analysis download the full report.