Dairy bright future ahead

ABARES, the Australian Bureau of Agricultural and Resource Economics and Sciences, paints an optimistic picture for the nation’s farm output in the new financial year that begins in under two weeks. For Tasmanian dairy farmers, things are looking up.

Its latest agricultural commodities report says we can look forward to a 3.1 per cent increase in the gross value of national farm production to about $54 billion though exports may fall marginally to about $42 billion in the light of expected reduced livestock production.

Tasmania, of course, is a bit player in the overall national scheme of things but in dairying we are a major force. It is educational to examine what ABARES has to say about that sector in the year ahead.

We operate in a global market with strong competition from the European Union, the US and New Zealand and so we should look at overall demand and our own supply expectations as well as those of our competitors.

ABARES says world dairy prices are forecast to increase by between three and eight per cent in 2015/16, as supply from key exporting regions grows slower than this year. Accordingly, the prices of skim milk powder and whole milk powder are forecast to increase by eight per cent and five per cent respectively to average US$2800 and US$2900 a tonne. Butter should be up four per cent and cheese three per cent.

What is our competition up to?
European Union milk production, with the removal of the milk quota system in April, should rise by one per cent, notably in Germany, Ireland, France, the Netherlands and the UK. That should coincide with more exports for them to the Russian Federation, whose 12-month ban on imports expires in August.
US milk production should also rise by one per cent but their exports are falling because of continued competition in export markets and the strong US dollar. Their butter and skim milk powder exports are way down as they have become less competitive.
NZ milk production is forecast to grow “slightly” and the size of the national dairy herd “marginally”. That is tantalising.
Australian dairy farmers can expect average milk prices of 45 cents a litre and a rise of two per cent in production to 9.4 billion litres. Milk production growth has been strongest here in Tasmania, with an estimated increase of 11 per cent in 2014/15 while it has been just two per cent in the biggest producing state, Victoria.
Demand for skim milk powder is strong. Australian exports were 24 per cent higher
in the first quarter of 2015 than during the same period in 2014. Most has been exported to Indonesia, Vietnam and the Philippines, where demand is high because of low world prices. ABARES says skim milk powder exports are estimated to increase by almost 30 per cent to 184 000 tonnes in 2014/15.

As usual, the all-important focus is China where demand for dairy imports has been falling because of a build-up of stocks, an increase in domestic milk production and a reduction in retail sales of milk products. That trend should continue, so the immediate future for Tasmanian dairying looks brighter for us among the South-East Asian nations.

This article first appeared in Tasmanian Country on 19th June.
TFGA president Wayne Johnston