Australia’s fortune changes with rains

During the past six months there has been a dramatic turnaround in milk production in Australia, according to the US Department of Agriculture’s Foreign Agricultural Service report. The dairy industry had faced a challenging period during 2018 and 2019 as drought affected most of the dairy farming regions in the eastern states of Australia (see chart above. Source: Dairy Australia). In addition to significantly reduced pasture production, fodder and grain prices spiked to record levels in 2019 as a result of poor crops and strong demand competition from other livestock industries.

Fortunes have starkly changed, however, with well-above average rainfalls since early 2020 throughout most of the previously drought-affected dairy farming regions. Dairy farmers predominantly supplying milk for manufactured products had the advantage of record high prices and, in general, were able to maintain their herd size enabling milk production to rebound quickly in 2020.

This has boosted pasture production, as well as resulted in reduced fodder and grain prices. As a result, milk production in the first quarter of 2020 was nearly 5% above the same period in 2019. FAS/Canberra forecasts overall milk production in 2020 at 9.2 million metric tons, up from 8.83 million in 2019. Cheese production is expected to have the greatest production increase of any of the major manufactured dairy products. Although the Covid-19 outbreak is not currently having a major impact on milk or dairy product production in Australia, it is expected to influence consumption and exports.

Fluid milk exports have seen consistent year-on-year increases over the last decade, increasing by 226% over the last 10 years. However, this growth is expected to stagnate in 2020, with exports forecast at 255,000 metric tonnes, nearly the same as 2019. This is due to disruption in trade caused by Covid-19. The fluid milk export is via air freight on passenger planes. With the large reduction in passenger flights due to Covid-19 there would be an expectation that export volumes would decline. However the Australian government has announced a support package to supplement the cost of air freight of perishable goods which was primarily targeted to the seafood industry but the dairy industry fluid milk and yoghurt products are also eligible and will support this trade. The majority of the growth of fluid milk exports is due to the growth in demand from China which now accounts for over 40%, with Singapore, Malaysia and Hong Kong the other key markets.

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