Australia’s dairy sector is set for a fifth consecutive year of profitability despite a forecasted drop in minimum farmgate milk prices. Rabobank’s report highlights stable feed prices, a recovering milk supply, and mixed seasonal conditions as key factors supporting continued industry resilience.
According to Rabobank’s Australian Dairy Seasonal Outlook 2024, Australian dairy farmers are on track for a fifth consecutive year of overall profitability, even with forecasted lower minimum farmgate milk prices for the upcoming season. The report, titled Walking a Tightrope, highlights the industry’s resilience amid various challenges
Forecasted Milk Prices
Rabobank predicts a decline in minimum farmgate milk prices across southern Australia, with expected prices ranging between AUD 8.00 and AUD 8.20/kg MS (milk solids). This represents an approximate 11% drop from current levels. Despite this forecasted decrease, the report suggests that diligent budgeting and strategic planning will enable dairy farms to remain profitable.
Factors Affecting Profitability
1. Milk Supply and Prices
- Price Trends: Dairy companies are faced with the challenge of providing sustainable milk price signals while managing softer market returns. With a recovery in milk supply ahead of schedule, some excess volumes are directed toward underperforming markets, potentially impacting profitability.
- Global Market Influence: The global dairy commodity market has shown signs of recovery from 2023 lows, but this is not expected to significantly boost minimum farmgate milk prices in Australia due to sluggish global market fundamentals.
2. Input Costs
- Feed Prices: Major input costs for feed are expected to remain stable at lower prices. Local feed markets are well-supplied, which is favorable for dairy farmers. Most feed market indicators are below the five-year average, and favorable weather conditions support a strong winter crop planting.
- Cost Inflation: While some cost inflation pressures persist, particularly in non-feed areas, overall cost inflation in the Australian economy is expected to moderate. This should alleviate some financial strain on dairy farms.
Milk Production Trends
Australia’s dairy sector is witnessing a recovery in milk production. The 2023/24 season is projected to end with a 2.9% increase in milk production, and the trend is expected to continue with a forecasted growth of 1.5% for 2024/25. This would mark the first two consecutive seasons of milk supply growth since 2014/15.
Current Seasonal Conditions
Seasonal conditions are mixed, but positive developments include the end of El Niño and a return to neutral conditions. Key dairying regions have experienced favourable weather, contributing to the overall positive outlook for milk production.
Outlook and Challenges
Despite the anticipated decrease in farmgate milk prices, the Australian dairy sector remains robust, driven by profitability from previous seasons and a favourable feed and water supply situation. However, challenges such as cost inflation and market uncertainties persist.
Rabobank’s report underscores that while the Australian dairy sector faces lower minimum farmgate milk prices in the upcoming season, it remains on a solid footing. The sector’s ability to maintain profitability will rely on careful financial management and strategic planning. Continued focus on budgeting and adapting to market conditions will be crucial for sustaining profitability and supporting long-term investment in the dairy industry.
