Australian dairy farmers anticipate profitable year despite expected price drop

Australia’s dairy farmers are on track for a fifth consecutive year of profitability, despite forecasts of lower minimum farmgate milk prices for the upcoming season, according to a recent industry report.

Rabobank, an agribusiness banking specialist, indicates that diligent budgeting and planning could enable the average Australian dairy farm business to maintain profitability in the 2024/25 season, despite an anticipated decline in milk prices for farmers in the southern milk pool.

According to Rabobank’s senior dairy analyst, Michael Harvey, minimum farmgate milk prices across the southern Australian manufacturing pool are expected to range between AUD 8.00 and AUD 8.20/kgMS for the upcoming season, representing an approximate 11 per cent decrease from the current pricing.

“In a market short of milk – and with an ambition to build momentum around the current milk supply recovery in Australia – dairy companies need to present sustainable milk price signals to suppliers to remain competitive,” Harvey said.

Despite the ongoing recovery in Australia’s milk supply, some excess volumes are being directed towards underperforming bulk ingredients and commodities, complicating the pricing dynamics.

It emphasises that any potential upside to minimum farmgate milk prices would likely hinge on further recovery in the global dairy commodity market, which is currently exhibiting sluggish fundamentals.

While there has been a positive trend in commodity returns, the global market’s uncertainties warrant a cautious approach to pricing.

Despite these challenges, Rabobank said it expects major input costs for feed production to remain stable heading into the new dairy production season, with favourable conditions in local feed markets and promising subsoil moisture levels.

While the seasonal conditions remain mixed, the dairy sector is experiencing widespread growth in milk production across all regions and states in the current season.

Rabobank forecasts a 2.9 per cent increase in Australian milk production for the 2023/24 season, with momentum expected to continue into 2024/25.

Despite the anticipated decrease in milk prices, Australia’s dairy sector has been a consistent performer in recent years, with consecutive seasons of profitability.

However, diligent budgeting and planning will be crucial for maintaining margins in the upcoming season, amid lower milk prices across manufacturing-exposed sectors.

“It hasn’t been easy given the challenges associated with labour availability and cost inflation, but the sector has been profitable. And some regions have faced challenges along the way, given the weather disruption witnessed in recent years,” Harvey asserted.

Overall, while the outlook for Australian dairy farmer margins remains positive for the 2024/25 season, it will require careful management to sustain profitability in the face of pricing challenges, Harvey concluded.