Insights September 2020
Insights September 2020
- The forecast of a wet spring will aid milk production over the seasonal peak and reduce input costs. Feed grain prices are likely to remain flat to slightly lower during September before coming under pressure at harvest.
- Australian dairy exports are well positioned to grow volume in 2020/21 however export prices will be lower.
- Global dairy prices have weakened under the weight of increased supply and are expected to continue to fall for the rest of 2020.
Warm soil temperatures coupled with adequate rainfall in August kept pastures growing through what would normally be a stagnant period in southern dairying regions. This aided milk supply and kept additional feed costs low. The forecast of a wet spring will add further confidence as the season enters the peak production months. However, in some regions the risk of becoming too wet could translate to pasture damage, which will need to be repaired once paddocks dry out. This isn’t expected to hinder production growth, however, there will likely be a higher requirement for additional feed such as silage. Looking longer term, feed grain prices are likely to decline once the new crop is harvested. This will provide dairy farmers with an opportunity to reduce input costs and maintain milk supply through summer, improving the outlook for profitability in 2020/21.
The value of Australian dairy exports increased for the third consecutive year in 2019/20, increasing by $50.6 million to $2.5 billion. The increase was driven by improvements in price which offset a decline in export volume as unfavourable seasonal conditions in 2019 kept overall milk production at a historically low level. The forecast of higher milk production in Australia will contribute to an increase in export volume in 2020/21. However, world supply is also expected to be higher driven by government intervention in response to COVID-19 which will likely lead to softer prices. China and Japan will remain our largest trading partners by value, currently representing 26 per cent and 19.2 per cent respectively. At state level, Victoria led the way for dairy exports, accounting for 77.7 per cent market share and increasing by $39.9 million to over $1.9 billion. Tasmania also reported strong growth, increasing by $8.1 million to $153.2 million, maintaining a market share of 6 per cent.
Global dairy prices were softer in August, driven by high inventories leading to increased offerings. The southern hemisphere will ramp up production over spring, this will be coupled with high inventories in Europe leading to softer prices in global markets for the remainder of 2020.
Sources: Global Dairy Trade and GTIS