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Crops |
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Livestock |
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Energy |
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Metals |
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| Dairy | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peter Berry |
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| Australian farm-gate milk prices are forecast to rise by 3 per cent to 51 cents a litre in 2008-09, up from an average of 49.6 cents a litre in 2007-08. Higher farm-gate milk prices reflect relatively high world prices for manufactured dairy products and price incentives offered by Australian milk processors to encourage higher milk production during a period of high input costs. However, despite higher farm-gate prices, a recovery in Australian milk production is expected to be slow. Lead times in herd rebuilding and continued low irrigation water allocations (particularly in the Murray-Darling Basin) will limit the ability of many Australian dairy farmers to significantly increase production in 2008-09. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Global dairy production to rise in response to high prices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Continued growth in global demand for dairy products and relatively high world prices will be met with mixed rates of growth in milk production in the main dairy exporting regions in 2008-09, with some major exporting countries continuing to face production constraints. In the European Union, milk production is forecast to increase by around 1 per cent in 2008-09, despite relatively high domestic milk prices and a 2.5 per cent increase in milk production quotas under the Common Agricultural Policy (CAP). Milk production quotas continue to restrict production growth in some of the European Union’s larger and more efficient milk producing countries while some other member states will be unable to fill their quotas because of industry restructuring and lower productivity of some smaller farms. In addition, high feed costs and the continued presence of bluetongue disease have the potential to reduce milk yields in some EU regions. An upward trend in domestic demand for dairy products in the European Union will have a significant impact on dairy trade in 2008-09. An increasing proportion of total EU production of dairy products will be consumed domestically, particularly in new member states where incomes are rising. As a result, EU exports of most manufactured dairy products are expected to decline in 2008-09. This trend is reflected in the first half of 2008 when EU dairy export volumes declined relative to the same period of 2007. New Zealand (the world’s largest exporter of dairy products) is expected to be the major contributor to growth in traded dairy supplies this year. New Zealand milk production is projected to increase by around 8 per cent in 2008-09, as milk yields recover from last year’s drought when production declined by more than 4 per cent. However, despite relatively high prices, the New Zealand dairy industry faces some constraints on its ability to rapidly increase production and exports. Growth in production will be constrained by the lead times required for increasing dairy herds and the speed at which land can be converted from competing uses, such as sheep and wool production. In the United States, milk production increased by around 3 per cent in the first half of 2008 in response to relatively high milk prices and strong export demand. A lower US dollar has also promoted increased exports, particularly of skim milk powder and cheese. In 2008-09, growth in US dairy production is projected to slow to around 2 per cent, as growing demand for biofuel feedstocks is expected to drive US feed prices higher and affect dairy profitability. As a result, growth in supplies available for export will slow, while an assumed recovery of the US dollar is expected to reduce price competitiveness and dampen export demand over the remainder of 2008-09. In Argentina, moderate growth in dairy exports is forecast in 2008-09, aided by an expected improvement in seasonal conditions. However, despite the recent removal of prohibitive export taxes on dairy products, growth in Argentina’s dairy exports remains constrained by extensive government intervention in the sector that has reduced the profitability of dairy production. In China, both the production and consumption of milk and dairy products are expected to continue to grow in 2008-09, albeit less strongly than in recent years. In addition, with domestic dairy production expected to account for an increasing proportion of domestic consumption, China is likely to import less dairy product this year. Given China’s growing output of milk powders, China’s imports of these products are likely to be the most affected. |
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| World dairy prices to fall in 2008-09, but remain relatively high | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| After pulling back from the highs of late 2007 and early 2008, world dairy prices stabilised at relatively high levels before falling again in August 2008 in response to an increase in traded supplies. For 2008-09 as a whole, forecast increases in export supplies from New Zealand and, to a lesser extent, the United States are expected to put some downward pressure on world dairy product prices. In 2008-09, world prices for skim milk powder and whole milk powder are forecast to average around 16 per cent lower at US$3500 a tonne and US$3825 a tonne respectively. Despite indications of slowing economic growth in some countries, world import demand for milk powders continues to grow, particularly in parts of Asia and the Middle East where income growth is high, and also in developed countries for use in food processing and animal feeds. In the short term, moderate growth in traded milk powder supplies is expected, reflecting proportionately more milk being used in the manufacture of higher value products like cheese, particularly in the European Union. Moderate growth in production, together with the exhaustion of EU intervention stocks, will limit the amount of milk powder available for export and support prices at relatively high levels. In 2008-09, world cheese prices are forecast to fall by 8 per cent, to average around US$4650 a tonne as growth in world supply exceeds growth in demand. Cheese production in the European Union is expected to expand in response to recent CAP reforms that provide incentives for the manufacture of higher value dairy products. However, increasing domestic EU cheese consumption will limit growth in cheese exports from that region in 2008. Cheese exports from the United States are expected to be higher for the year, while exports from Australia are expected to be up slightly, in line with a forecast modest increase in milk production. Butter prices are also forecast to fall in 2008-09, down by 9 per cent to average US$3650 a tonne. Butter consumption has been rising in line with rising incomes in the Russian Federation, Egypt and parts of the Middle East. In the United States and the European Union butter consumption has been growing more slowly. Increased exports from the United States (largely because of a lower US dollar) and from New Zealand, is the main driver of lower world prices. |
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| Australian milk production begins to recover | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| After falling by an estimated 4 per cent in 2007-08, Australian milk production is forecast to rise by 1.6 per cent to almost 9.4 billion litres in 2008-09. This reflects an expected increase in dairy cow numbers (the first increase in seven years) together with lower feed costs. In 2008-09, the Australian dairy industry’s capacity to increase milk production continues to be strongly linked to rainfall patterns, the availability of water for irrigation and the cost of purchased feeds. Assuming average seasonal conditions for the remainder of the financial year, fodder availability is expected to improve in most dairying regions in 2008-09. However, for irrigation-dependent farms in the Murray-Darling Basin where current water storage levels are very low, sustained, above-average rainfall in catchments is required before average water allocations can resume. In addition, with feed grain prices forecast to remain relatively high during 2008-09, an improvement in fodder supplies from on-farm and off-farm sources in spring will be the key factor in allowing continued herd rebuilding and increased milk production for the year. |
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| Farm-gate milk prices forecast to rise in 2008-09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In 2008-09, Australian farm-gate milk prices are forecast to rise by 3 per cent, to average around 51 cents a litre. Higher farm-gate milk prices reflect competition between dairy processors to maintain milk supplies amid relatively high world prices for dairy products. For farmers, higher farm-gate prices provide an incentive to maintain milk production despite higher input costs. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian dairy export earnings to fall in 2008-09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The value of Australian dairy exports increased by 13 per cent to almost $2.8 billion in 2007-08, as higher world dairy prices outweighed the effect of a decline in export volumes and a higher Australian dollar. In 2008-09, the total value of Australian dairy exports is forecast to fall by 1.5 per cent to $2.7 billion. An assumed lower Australian dollar is expected to partially offset the effect of forecast lower world dairy prices. In 2008-09, the value of skim milk powder exports is forecast to be down by 6 per cent to $503 million and whole milk powder export earnings down by 7 per cent to $365 million. The value of butter exports is forecast to be down by 1 per cent to $193 million, while export earnings from casein and cheese are expected to be up by 6 per cent and 1 per cent, to $132 million and $978 million respectively. |
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