27 Oct, 2008 - Australian production of fluid milk for 2008/09 is forecast to increase by approximately two percent to 9,700 TMT. Improved seasonal conditions and fodder and grain supplies are likely to allow the Australian dairy herd to expand by four percent.
Despite recent improvements, irrigation water allocations are expected to remain at historically low levels and this is expected to constrain larger increases in production. Post has increased its forecast for production of cheese, butter and milk powders in line with forecast increases in fluid milk production. Exports of these commodities are also expected to increase.
Seasonal conditions experienced in the first quarter of 2008/09 represent a marked improvement over those experienced in the same period for the previous year. Widespread rain through south eastern Australia has seen the production conditions for dairy improve markedly. At the time of writing this report, pasture conditions for key dairy areas range from average to above average and post anticipates good conditions for fodder production over the up coming summer.
Winter cereal crop production is forecast to improve markedly compared to last year with wheat production forecast to reach its highest level in three years and follows a record sorghum harvest. Cotton and oilseed production is also forecast to improve significantly likely causing an increase in production of vital byproducts for use in feed rations.
Post expects the Australian dairy herd to expand somewhat during 2008/09 although this expansion will be constrained by the availability of suitable livestock, following years of drought and herd reduction. Prices paid for dairy cows have recently reached record levels according to rural media reports and this is seen as evidence that the industry is expanding. Post advises that any increase in production will be incremental and sees a sharp increase in production as highly unlikely. Continued low levels of irrigation water allocations and other residual effects of severe and long running drought will likely require a number of years before production will reach levels experienced prior to the drought which began in CY 2002.
A recent ABARE report stated that dairy returns are likely to improve over 2008/09. However, commodity prices have since fallen sharply due to the current economic uncertainty being experienced around the world. Post advises that the value of the Australian dollar has declined sharply also, and this has largely insulated Australia from the fall in commodity prices. Similar falls in fuel and fertilizer prices (farm gate) would also improve farm returns, although this remains to be seen.