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Insights September 2023

12 September 2023 |Dairy

Insights September 2023

12 September 2023 |Dairy
The September update provides an analysis of production and pricing trends for Australian dairy producers.

Commodity overview

  • Australian milk production for the 2022/23 season totalled 8.1 billion litres, the lowest domestic pool since 1993.
  • The Global Dairy Trade Index lifted for the first time since May, but sufficient global supply and flat demand indicate growth won’t be sustained.
  • Record Australian farmgate prices and low global prices are putting significant pressure on local processors.

June milk production lifted 1.2 per cent year-on-year to 577 million litres. This saw full season 2022/23 milk production of 8.1 billion litres, the lowest total since 1993. High production costs and land values drove industry exits. This led to production declines for the past three seasons. Easing input prices and record high farmgate milk prices are expected to see a slowdown in industry shrinkage. Production is expected to stabilise in the coming season but is forecast to drop below 8 billion litres.

Global milk production remains stagnant. Recent data shows European production has been up year-on-year for the past ten months, but growth has slowed. US and New Zealand production in July was down year-on-year, but full season production is still expected to lift marginally.

Export demand remains flat as Chinese buying remains subdued. China is set to become the world's third largest producer of cow milk this year. Despite this, they remain the largest dairy importer due to their large population. While global production is less than stellar, soft export demand means market tension is low. Buyers can readily source supply which is weighing on global prices.

The Global Dairy Trade index made month-on-month gains for the first time since May. This was driven by a six per cent lift in whole milk powder (WMP) prices. This wasn't entirely unexpected as WMP crashed 11 per cent in the previous global auction to a seven-year low. Rather than a sign of increased buyer appetite, this lift is pretty typical of global dairy price movements. Prices have bounced around as lows are met by opportunistic buying. A sustained lift in global prices will only occur with a significant lift in buying or a significant decline in production. Neither of these looks likely in the near term, so prices are expected to hover around current levels.

In Australia, the disconnect between local and global prices raises concerns. Australian farmgate prices average a record high A$9.36/Kg MS, while in New Zealand prices are closer to A$6.25/Kg MS. This not only makes Australian product uncompetitive on the export market but is also likely to see increased dairy imports. Processors feeling the squeeze are warning that current market conditions are similar to 2015/16 when they clawed back money already paid to farmers. The result of this was the introduction of the mandatory dairy code, prohibiting clawbacks. Step downs are allowed, but only under exceptional circumstances. This begs the question: what are exceptional circumstances? Global dairy prices were already below average when 2023/24 season farmgate prices were being set. Processors knew they would have to pay above export prices to secure decades low supply. The chances of any reduction to farmgate prices are close to non-existent. But the season ahead looks difficult for an industry already suffering from processor downsizing.

A graph showing global prices for skim milk powder and cheddar from January 2020 to September 2023 showing some gains in the past month.
A graph showing monthly milk production in Australia for the last three seasons. Production in July 2023 was a slight increase on July 2022.

Sources: Global Dairy Trade, Dairy Australia

Any advice provided in this update is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation. Please read the applicable Product Disclosure Statement(s) on our website ( before acquiring any product described in this update.

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