Can Australian dairy farmers achieve a fifth profitable year despite lower milk prices? Discover Rabobank’s insights on budgeting, planning, and market trends for 2024/25.
Despite the predicted reduction in farmgate milk prices, Australian dairy farmers are on track for their fifth straight year of profitability, according to Rabobank’s Australian Dairy Seasonal Outlook 2024, “Walking a Tightrope.” This highlights the dairy sector’s capacity to retain financial stability in the face of market problems. Effective budgeting and strategic planning are critical for managing price swings and guaranteeing long-term profitability. Maintaining profitability in an agricultural setting characterized by instability is laudable. With careful management, the typical Australian dairy farm is expected to have another successful season in 2024/25.
Rabobank Report Overview
| Season | Farmgate Milk Price (AUD/kgMS) | Milk Production Growth (%) | Input Cost Inflation | Domestic Market Returns |
|---|---|---|---|---|
| 2020/21 | 8.50 | 1.0% | High | Stable |
| 2021/22 | 8.60 | 1.5% | Moderate | Positive |
| 2022/23 | 9.00 | 2.5% | High | Hyperinflation |
| 2023/24 | 8.90 | 2.9% | Receding | Improving |
| 2024/25 (Forecast) | 8.00-8.20 | 1.5% | Moderate | Challenging |
Rabobank’s Australian Dairy Seasonal Outlook 2024, themed “Walking a Tightrope,” offers a hopeful but cautious outlook for the next season. Despite predicted decreased farmgate milk prices, the research expects Australian dairy farmers to be profitable for the seventh year. Minimum milk prices are forecast to range between AUD 8.00 to AUD 8.20/kgMS, representing an 11 percent decrease from current levels.
Rabobank remains positive, highlighting the significance of careful budgeting and planning to ensure profitability. Lower input costs and sufficient feed and water availability offer a solid platform for future milk production increases. The view emphasizes the resilience of Australian dairy producers, stating that with good management, they can maintain profitability despite market swings.
Walking a Tightrope: The Delicate Balance for Dairy Companies
| Market Condition | Impact on Dairy Sector |
|---|---|
| Softer Market Returns | Challenges in maintaining strong price signals to suppliers |
| Excess Milk Volumes | Channeling toward underperforming bulk ingredients and commodities |
| Hyperinflation in Grocery Aisle | Better returns in the domestic market but cost-of-living pressures negatively impact retail |
| Global Dairy Commodity Market Recovery | Potential upside to minimum farmgate milk prices, though not expected in the next 12 months |
| Local Feed Market Supply | Well-supplied markets leading to positive financial relief for dairy farmers |
| Cost-Inflation Pressures | Ongoing, with sticky inflation in other parts of the business affecting on-farm costs |
| Weather Outlook | Mixed conditions with El Niño ending but some regions receiving mild autumn breaks |
The current market circumstances are dangerous for the Australian dairy sector. Dairy firms must strike a delicate balance between sending strong price signals to milk providers and maintaining the current supply rebound. However, this ambition is tempered by the reality of domestic and international lower market returns. Although milk production has recovered, certain products remain unprofitable, resulting in lower farmgate milk prices for the forthcoming season. Although the domestic market has improved since hyperinflation, consumers are trading down owing to cost-of-living concerns, limiting retail development. Dairy firms must incentivize milk production while managing weaker market returns, emphasizing the need for effective pricing signaling and cautious financial planning in the next season.
Contrasting Performances in Domestic and Export Markets Shape Profitability
| Domestic Market | Export Market | |
|---|---|---|
| Performance | Strong returns following hyperinflation but impacted by cost-of-living pressures and consumer shifts to private label products. | Underperforming, with excess volumes channeled towards bulk ingredients and commodities struggling in markets. |
| Price Signals | Positive, benefiting from higher local demand and better price realizations. | Weak, adversely affected by sluggish global market fundamentals and market uncertainties. |
| Demand Trends | Firm and growing, driven by stable consumer demand even amid economic pressures. | Variable, with global milk production largely flat, reflecting marginal increases or decreases. |
| Competitiveness | Enhanced by lower farmgate prices that make locally processed products more attractive compared to imports. | Challenged, needing robust market recovery to see any price upside. |
The differential performance of local and export markets is critical in determining the profitability picture for the Australian dairy industry. Domestically, hyperinflation in grocery stores has increased dairy refunds. Despite rising living costs, customers continue to purchase dairy products at lower prices. Farmers have had a consistent source of income because of this steadiness.
However, export markets are suffering owing to deteriorating global dairy commodity fundamentals. Dairy firms must move extra milk into bulk components and commodities, which do not produce attractive pricing. Global uncertainties have delayed commodity price recovery, reducing export profits.
These characteristics have a cumulative impact on sector profitability. The local market provides a cushion, enabling certain areas to remain profitable, while weak exports offset this. To be profitable, dairy producers must carefully prepare their response to these difficulties. The local solid returns provide some relief, but global market constraints need a cautious approach to farmgate milk pricing to guarantee long-term viability.
Price Upside Hinges on Global Dairy Market Recovery Amid Uncertain Outlook
| Season | Minimum Farmgate Milk Price (AUD/kgMS) | Percentage Change |
|---|---|---|
| 2022/23 | 9.00 | — |
| 2023/24 | 8.90 | -1.1% |
| 2024/25 (Forecast) | 8.00 – 8.20 | -7.9% to -11% |
Rabobank notes that any rise in minimum farmgate milk prices is contingent on a more robust recovery in the global dairy commodities market. However, the bank’s prognosis for the next year remains cautious owing to persistent global market uncertainty. Despite a return from 2023 lows that harmed farmgate prices elsewhere, the recovery is gradual as Australia prepares for a new production season. As a result, Rabobank recommends taking a cautious approach to establishing minimum milk prices in the face of unfavorable market conditions.
Feed Market Stability Offers Financial Relief Amid Expected Lower Farmgate Prices
| Input Cost | Current Average Price (AUD) | 5-Year Average Price (AUD) |
|---|---|---|
| Purchased Feed | 340/ton | 380/ton |
| Grain | 290/ton | 320/ton |
| Hay | 200/ton | 210/ton |
| Silage | 180/ton | 200/ton |
| Subsoil Moisture | Optimal Levels | Variable |
Mr. Harvey anticipates that substantial input costs for feed production will remain consistent at lower levels as we enter the new dairy production season. Local feed stores are well-stocked, which bodes well for farmers as they prepare their budgets. Positive signs include most feed market prices trading below the five-year average and high subsoil moisture levels on the East Coast, indicating a solid winter crop planting and a neutral feed price forecast. These favorable circumstances are critical given the continued on-farm cost constraints. Reduced input costs alleviate the financial burden, enabling improved budgeting and planning, even with reduced farmgate milk prices predicted.
Cost-Inflation Headwinds: Navigating Elevated Expenses and Economic Stabilization Efforts
| Year | Cost Inflation (% YoY) | Feed Cost Index | Economic Indicator |
|---|---|---|---|
| 2020 | 3.2 | 110 | High inflation period driven by supply chain disruptions. |
| 2021 | 4.0 | 115 | Increased cost pressures due to global economic recovery. |
| 2022 | 5.2 | 120 | Peak inflation, driven by fuel and labor costs. |
| 2023 | 3.8 | 105 | Moderating inflation with easing of input costs. |
| 2024* | 3.0 | 102 | Projected stabilization with improved economic measures. |
*Forecast values based on current economic trends and market analysis.
The Australian dairy business continues to confront cost-inflation challenges, affecting numerous aspects of farm operations. Despite these challenges, attempts to restore economic stability are beginning to produce dividends. Cost inflation in the larger Australian economy is expected to moderate, which would assist dairy producers with high overhead expenses. Reducing inflationary pressures should allow for more efficient resource allocation and help preserve profitability despite changeable market circumstances.
Weather Extremes and Cautious Optimism: Navigating Seasonal Complexities in Australia’s Dairy Regions
Current seasonal conditions remain variable throughout Australia’s dairy regions, producing a problematic environment for farmers. The Bureau of Meteorology certifies the conclusion of El Niño, resulting in neutral ENSO conditions. This move provides cautious hope as dairy producers deal with unpredictable weather patterns. Recent mild fall weather has helped central dairying locations, perhaps boosting pastures and fodder crops critical for consistent feed supply and quality. While certain areas may anticipate continuous rainfall and mild conditions to help agricultural development, others may have unpredictable weather patterns. The forecast is varied but cautiously optimistic, with the ability to sustain current milk production growth trends.
A Buoyant Surge in Milk Production Elevates the Australian Dairy Sector
| Region | Monthly Increase (%) | Season Increase (%) |
|---|---|---|
| New South Wales | 3.3 | 5.5 |
| South Australia | 2.1 | 2.1 |
| Western Australia | 2.1 | 2.1 |
As reported by dairy producers, milk output is increasing significantly throughout all areas of Australia. This expansion is fueled by constant profitability, adequate feed and water, and good seasonal circumstances that strengthen dairy enterprises’ resilience. Rabobank predicts a 2.9% rise in milk output for the 2023/24 season, with an additional 1.5% growth projected in 2024/25. This is the sector’s first consecutive season of development since 2014/15, showcasing its good momentum and flexibility.
The Bottom Line
Despite reduced farmgate milk prices, Australia’s dairy farmers are expected to have another lucrative year. According to Rabobank’s analysis, the industry may continue to thrive in the 2024-25 season with careful financial management and strategic planning. Favorable feed market circumstances and abundant water availability contribute to a favorable outlook for long-term profitability. The forecast is encouraging, based on dairy firms’ capacity to control costs and profit from expected inflation reduction. While decreased margins are projected owing to market shifts, careful budgeting and planning are required. This strategy will protect profitability while encouraging long-term investment and growth. Stakeholders must remain proactive, respond to market changes, and handle operational issues. This allows Australian dairy producers to prosper while preserving the industry’s long-term viability. Supporting strategic projects is vital for moving the industry ahead and ensuring a successful future for Australian dairy.
Key Takeaways:
- Australian dairy farmers are positioned for a fifth consecutive year of profitability despite expected lower farmgate milk prices.
- Farmgate milk prices in the southern Australian manufacturing pool are anticipated to fall by approximately 11%.
- Dairy companies face the challenge of maintaining competitive milk prices amid softer market returns and excess supply in certain areas.
- Domestic markets are performing better than export markets, but consumer cost-of-living pressures are shifting buying behavior towards cheaper options.
- Upside to farmgate milk prices depends on global dairy market recovery, which Rabobank predicts will be sluggish over the next 12 months.
- Feed costs are expected to remain stable, benefiting dairy farms by easing some of the financial pressure.
- Cost inflation, although receding, continues to impact overall farm expenses in Australia.
- Current seasonal conditions and the three-month weather outlook present mixed signals for the dairy industry.
- Australian milk production is experiencing widespread growth, continuing into the new season, marking consecutive years of supply growth.
- The dairy sector has demonstrated strong performance, maintaining profitability despite various challenges, and remains a vital part of the agricultural economy.
Summary:
Australian dairy farmers are predicted to have their fifth consecutive year of profitability, according to Rabobank’s Australian Dairy Seasonal Outlook 2024. This indicates the dairy sector’s ability to maintain financial stability despite market challenges. Effective budgeting and strategic planning are crucial for managing price swings and ensuring long-term profitability. The differential performance of local and export markets is crucial for determining profitability. Domestically, hyperinflation in grocery stores has increased dairy refunds, while export markets are suffering due to deteriorating global dairy commodity fundamentals. Dairy firms must move extra milk into bulk components and commodities, which do not produce attractive pricing. Global uncertainties have delayed commodity price recovery, reducing export profits. To be profitable, dairy producers must carefully prepare their response to these difficulties. Local solid returns provide some relief, but a cautious approach to farmgate milk pricing is needed for long-term viability.
Learn more:
- Rabobank Forecasts $8.40 Milk Price for 2024-2025 Amid Modest Global Supply – Key Factors Unveiled
- Australia’s Dairy Farmers Struggle as Major Processors Slash Milk Prices by 15%
- Slow Global Dairy Price Recovery Anticipated, Rabobank Analysis Shows: Unpacking the Market Trends
