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Insights March 2024

11 March 2024 |Dairy

Insights March 2024

11 March 2024 |Dairy
The March update provides an analysis of production and pricing trends for Australian dairy producers.

Commodity Overview

  • National milk production continues to exceed last season but will still be well below five-year average production of 8.6 million litres.
  • The Global Dairy Trade Index declined for the first time since November last year. The index currently sits below average, but remains 4.5 per cent above this time last year, and 8.4 per cent above June 2023 when opening Farmgate prices were announced.

National milk production in January was a 4.8 per cent increase on last year. This narrowed season-to-date production from 4.5 per cent below average last month to 3.8 per cent this month. New South Wales recorded the largest year-on-year increase in January with 9.4 per cent. Queensland milk production was close to unchanged on 2023, while South Australia produced two per cent less than last year. Season to date production at a state level saw only New South Wales and Tasmania remain around average. Production across all other states, and at a national level remains below average. But gradual growth in output continues with production this time last year sitting at 6.1 per cent below average.

The Global Dairy Trade (GDT) Index has declined for the first time since November last year. This breaks a consecutive run of increases in the last six sessions. This puts the index 1.8 per cent below average, but 4.5 per cent up year-on-year. Weakness in the index was driven by declines in Whole Milk Powder (WMP) and Skim Milk Powder (SMP). China normally provides a baseline of demand for milk powder demand. But subdued Chinese demand has seen more sporadic and opportunistic global purchasing of milk powders. The outlook for Chinese demand isn't overly bullish. China's economic recovery post-COVID has been slower than expected. This has impacted dairy imports in the country. China's dairy imports in 2023 were down 12 per cent year-on-year. Reduced spending in foodservice and increased domestic production has driven lower demand. Decelerating population growth is likely to slow consumption growth seen over the past decade. This indicates Chinese dairy imports are unlikely to see growth in the near term. This is particularly the case for fresh milk and milk powders. There may be some potential for increased Chinese demand for processed dairy products. Chinese demand for cheese has been increasing in recent years, but China has limited processing capacity.

In Australia, high farmgate milk prices and lower global dairy prices are seeing increased imports. Low domestic production means lower processing throughput and less exportable surplus. Despite record farmgate prices, milk production isn't increasing which is seeing a shift in the industry. While milk supply is stabilising this season, the outlook doesn't suggest significant growth in coming years. But industry contraction looks to be easing. Processors 'right sizing' operations will eventually lead to an easing of demand to produce export products. This suggests that the future of the Australian dairy industry will be increasingly domestic focused. For the upcoming season demand is again likely to exceed supply. Competition to secure supply will see high farmgate milk prices maintained, though not at record highs. The GDT Index currently sits 8.4 per cent above June 2023 when opening farmgate prices were announced. This will give processors a little leeway when setting new season prices. But farmgate prices will need to be lower for Australia to recapture export demand.

A graph showing global prices for skim milk powder and cheddar from November 2021 to March 2024. Skim milk powder saw some price declines last month while cheddar edged higher.
A graph showing monthly milk production in Australia for the last three seasons. National milk production in January 2024 was a 4.8 per cent increase on January 2023.

Sources: Global Dairy Trade, Dairy Australia

This article is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Rural Bank, a Division of Bendigo and Adelaide Bank Limited, ABN 11 068 049 178 AFSL/Australian Credit Licence 237879, makes no representation as to or accepts any responsibility for the accuracy or completeness of information contained in this report. Any opinions, estimates and projections in this report do not necessarily reflect the opinions of Rural Bank and are subject to change without notice. Rural Bank has no obligation to update, modify or amend this article or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth therein, changes or subsequently becomes inaccurate. This article is provided for informational purposes only. The information contained in this article does not take into account your personal circumstances and should not be relied upon without consulting your legal, financial, tax or other appropriate professional.

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