The Australian dairy industry looks to have normalised, with a decent seasonal outlook and better farmgate prices encouraging increased production, according to the latest NAB Agribusiness Dairy in Focus report.
NAB Agribusiness economist Phin Ziebell says it’s a welcome relief from the volatility of recent years.
“Farmgate prices are respectable, with most major processors announcing step-ups to the mid-$5 range this season,” Mr Ziebell said.
“This appears to be supporting production, with the latest figures showing November milk deliveries up 4.3 per cent year on year.
“This provides a partial recovery to the plunge of 6.9 per cent in 2016-17, caused by a combination of ongoing price shock and a very wet spring, particularly in Victoria.”
The Bureau of Meteorology’s latest forecast points to average to wetter than average conditions for coming months, after a mixed 2017 across the country.
However, overall, NAB is not expecting a major increase in Australian milk production this season.
The forecast for New Zealand is a 2 per cent drop in production for 2017-18 on the back of dry conditions. However, both the European Union and the United States have seen increased milk deliveries in recent months, due to the abolition of milk quotas and cheap feed respectively.
“There’s been some relief to a downward trend in global prices in USD terms, but the strength of the Australian dollar has eroded those gains.
“While multiple factors have conspired to push the AUD/USD firmly back into the 0.77 to 0.80 range, NAB is still confident that the AUD will spend most of the year under USD0.75.”
Australian dairy exports have trended gradually higher in value over recent years, as the composition has moved away from whole milk and skim milk powder in favour of other powders such as infant formula.
NAB’s forecast for interest rates is a gradual increase in the second half of 2018, as labour market conditions improve and both employment and wages grow.